What the US Election Results Mean for Renewable Energy
More than 1,400 people listened to a roundtable discussion among five Washington insiders two days after the election in early November about what the results mean for renewable energy. The following is an edited transcript.
The US elections took away big Democratic majorities in Congress.
Republicans ended up with roughly 56% of the House of Representatives and with more seats in the Senate where, even though the Democrats retain control, they do not have enough seats to move any legislation without the support of both parties. The split in the Senate is now 53 seats for the Democrats and 47 for the Republicans. It takes 60 votes in the Senate in practice to move major legislation.
How quickly the political landscape can change. Barely 18 months ago, the mood in the renewable energy community was euphoric. The talk was about the ambitious agenda the new Obama administration had to usher in a new green economy. The new president wanted the United States to place a price on carbon, adopt a national renewable energy standard requiring utilities nationwide to supply a certain percentage of their electricity from renewables and take action to address growing congestion on the transmission grid. The administration worried that new renewable energy development would grind to a halt in the weak economy. It put through federal loan guarantees and Treasury cash grants as a short-term stimulus until the economy could recover.
The panel talked about the outlook for the green agenda after the election, including renewal of the stimulus measures in the next Congress.
The panelists are Jonathan Weisgall, head of the Washington office for Mid-American Energy Holdings, a large holding company based in Iowa that owns two US utilities, two natural gas pipelines and a large number of wind farms and geothermal facilities both through its utilities and an independent power subsidiary, John Shelk, president and chief executive officer of the Electric Power Supply Association, the trade association for the independent power industry in the United States, Richard Glick, head of the Washington office for Iberdrola Renewables, Inc., a global utility headquartered in Spain whose US subsidiary is the number two US wind company but that is also working on solar and biomass projects, Greg Wetstone, former chief lobbyist for the American Wind Energy Association and currently Washington office head for Terra-Gen Power, a growing renewable energy developer that is focused not only on wind but also solar and geothermal projects, and Joe Mikrut, a partner with Capitol Tax Partners who was the tax legislative counsel at the US Treasury Department under President Clinton and, before that, a lawyer on the staff of the Joint Committee on Taxation in Congress. The moderator is Keith Martin with Chadbourne in Washington.
MR. MARTIN: Before we launch into the discussion, let me set the stage by covering some Washington jargon you may hear used on this call. “Lame-duck session”: Congress returns in late November for a short session. It will end some time before year end. This will be the last meeting of the old Congress with the Democrats still in charge. The government will run out of spending authority on December 3; one phrase you may hear is “continuing resolution.” That is a resolution that gives the government power to continue spending at the level it did in the last budget year. Congress will have to take action in the lame-duck session to renew the government’s spending authority. Unemployment benefits run out in late November. Congress will have to decide whether to extend them for the 9.6% of Americans who are out of work, many of whom may have exhausted their unemployment benefits. The lame-duck session will also have to decide whether to extend Bush era tax cuts that are set to expire at year end. Both parties want an extension, notwithstanding the rhetoric about the pressing need to reduce the federal budget deficit, and the debate has come down to whether the tax cuts should be extended for Americans earning more than $250,000 a year and for how long. Any work not completed by year end this year will have to start over in the next Congress. President Obama still will wield defensive power but will not have as much offensive strength. A bill must pass both houses of Congress to become law. However, once it passes, the president can veto it. A veto requires a two-thirds vote by both houses to override. The Republicans are expected to end up with roughly 56% of the House and only 47% of the Senate. Joe Mikrut, what is your overall assessment of the election results—are they good, bad or neutral for renewable energy?
MR. MIKRUT: I think largely neutral. My focus is tax issues. Both Republicans and Democrats have backed the tax incentives that are in the US tax code currently for renewable energy over many years. I think the larger question into which some of the other panelists may have greater insight is how the larger energy agenda in the House will change now that the Republicans have taken control. President Obama put renewables high up on his list of priorities. The Democrats backed that agenda in the House. My guess is that it may not be as high a priority for the Republicans.
MR. MARTIN: Jon Weisgall, what is your overall assessment?
MR. WEISGALL: President Obama is the third president in a row to lose a house of Congress in a mid-term election. A Reuters story yesterday said this has now dashed his hopes of moving comprehensive energy legislation because Republicans oppose a cap-and-trade program to limit carbon emissions and do not believe in putting renewable energy at the center of any national energy policy. I have a contrary view. I think Republicans will help renewables. Republicans take an “all of the above” approach on energy resources, but not to the exclusion of renewables. Therefore, my sound bite would be we will not see any kind of a climate change cap-and-trade bill, but there is hope for a broad energy bill, including one that renews some of the tax subsidies to which Joe Mikrut referred. The $64 question is what will be in that bill.
MR. MARTIN: John Shelk?
MR. SHELK: I think the overall assessment is probably a negative, but there is a tendency, particularly in the few days after the election, to have it be black and white. You mentioned in your introduction, Keith, that barely 18 months ago, the renewable energy industry was euphoric at the prospect of a pronounced policy shift in favor of renewable energy. Maybe some of the same people are now swinging to despair. The results are a net negative. The reason I say that is not because Republicans will not support renewables as there are plenty of wind farms and biomass and geothermal projects in pro-Republican red states, but because the new speaker of the House is from a major coal state, the Senate Republican leader is from a major coal state, and some of the key committee chairmen will be as well. The intriguing thing is President Obama seemed to signal yesterday at the press conference that he may be willing to discuss a delay or even a ban on Environmental Protection Agency regulation of greenhouse gas emissions in exchange for Republican support for clean energy. I think that is simply the pragmatic political calculus. He is looking ahead to 2012 and realizing he cannot win the swing states that just went Republican and win the White House in two years without making some accommodation to the agenda in those states that drove voters en masse to the Republican side. Many of those states have a lot of coal or other traditional fuels.
MR. MARTIN: Rich Glick, were the election results good, bad or neutral for renewable energy?
MR. GLICK: I think the outcome was generally a bad result for the reason that the Republicans will be controlling the agenda in the House not only through John Boehner, who is expected to take over as speaker, but also through the majority leader, Eric Cantor from Virginia, and also at the committee level. Whoever ends up as chairman of the energy committee in the House is not going to make promoting renewable energy as high a priority as Henry Waxman from California, or Nancy Pelosi, the House speaker also from California, did in the last two years. The one potential silver lining is that if, for whatever reason, the shift of seats to the Republicans causes Congress to start moving bills more efficiently, then it would be a plus for renewable energy since Congress might finally be able to move an energy bill. For all the euphoria of the last two years, it is important to remember that we did not get much beyond the economic stimulus bill in early 2009 from the last Congress.
MR. MARTIN: Greg Wetstone?
MR. WETSTONE: I think you can distinguish between the tax world where I see a path for the two parties to work together to renew expiring subsidies and the energy policy world where there is reason to be concerned that the gridlock in the last Congress will continue. The voters threw out many moderates on both sides of the aisle on Tuesday. It used to be that if a member of Congress was willing to work across the aisle to get legislation passed, that earned points at home. What we saw in this election is that the moderates who made the place work took the most heat in campaign ads. About half the moderate Democrats—the so-called “blue dogs”—in the House lost their seats. Republicans who were willing to work with Democrats did not fare well in the Republican primaries leading up to the election. It is not a great dynamic.
MR. WEISGALL: The interesting dynamic is you have voters who are saying don’t compromise. That is especially true of the Tea Party movement. But at the same time, there seems to be an overwhelming interest among voters in seeing Congress solve problems and get something done. Picking up on what Rich Glick said, maybe split houses of Congress will result in a greater opportunity for compromise than we saw in the last two years where there was one party in control of the House, Senate and White House, leading the Republicans in the Senate to dig in their heels and block everything. Maybe they won’t feel as great a need to block everything if some of the bills are coming over from a Republican House. MR. MARTIN: I have been thinking lately that the renewable energy industry is probably the one industry hurt most by gridlock in Washington. It relies on temporary public policy supports that must be renewed periodically by Congress. If Congress isn’t functioning, this industry suffers. However, that may be too simple a picture. Do you agree or disagree with this gridlock theory?
MR. WETSTONE: There are more than 70 expired or expiring tax credits that are now part of various “extenders” tax bills that are pending in Congress. I think the gridlock is hurting across the American economy. Businesses across the spectrum are pushing for action. It is partly because of that broad pressure that there may be some hope for moving forward on the tax front, perhaps even in the lame-duck session in December without waiting for the new Congress.
MR. MARTIN: One reason I thought it might be too simple a picture is half the subsidy for renewable energy in the US is permanent. It does not have to be renewed periodically. And a lot of the public policy support is at the state level in the form of renewable portfolio standards. Joe Mikrut, everyone is wondering whether the Treasury cash grant program for renewable energy will be extended by Congress and, if so, when? What’s your assessment?
Cash Grant Extension
MR. MIKRUT: Let’s make sure our listeners understand that the cash grant program actually runs through when the tax credits for renewable energy are scheduled to expire. That means through 2012 for wind, 2016 for solar and 2013 for other renewables such as biomass and geothermal. However, projects completed after 2010 do not qualify for grants unless they are under construction by the end of this year. Congress is considering extending the deadline to start construction. This isn’t the only issue like this that Congress has to tackle. The really big one is the Bush-era tax cuts that expire at year end. No one wants to see workers’ paychecks go down on January 1 because of higher tax withholding. I think the odds are better than 50-50 that Congress will vote in December, as part of a larger bill extending the Bush tax cuts and a number of other expiring tax benefits, to allow more time to start construction for the grant program. The challenges will be to finish these items in a short lameduck session and for the renewables industry to persuade Congress that the cash grants are like all the other expiring tax provisions that are extended periodically by Congress, rather than a one-time stimulus that was intended to disappear after 2010. The success of the cash grant program in stimulating new development and the continued need for it in an otherwise weak tax equity market should demonstrate that the program warrants extending. There are reasons to be guardedly optimistic.
MR. MARTIN: If Congress extends the Bush tax cuts in December without also extending the cash grant, then how would the odds look for an extension of the cash grant program next year?
MR. MIKRUT: It will depend on what else the Bush tax cut bill carries with it. If all Congress does in December is extend the Bush tax cuts without also extending the expired research and development tax credit, the ethanol tax credit and other popular extenders, then I think the cash grant program moves later with the other extenders. If the other extenders get done in December with the Bush tax cuts, then I think it will be much more difficult to extend the cash grant program in 2011.
MR. MARTIN: Rich Glick, what do you think are the odds that Congress will give developers more time to start construction and qualify for Treasury cash grants?
MR. GLICK: I am hopeful, if there is a tax extenders bill, that the Treasury grant program will be added to that bill. We have strong indications from both the House and Senate at the staff level that that is the plan. I think the greater concern is what happens if there is no tax extenders bill in December. The Republicans will be in charge in the House. Dave Camp, a congressman from Michigan, will be in charge of the House tax committee. The question is how will they view this program? Will they view it as a traditional tax extenders provision or will they view it as part of the larger Obama stimulus effort to which Republicans have generally been hostile? We’re hopeful even next year, especially with Senator Harry Reid, the Senate majority leader and a supporter of renewable energy, having been reelected, but our chances are better if we can get it through this year.
MR. MARTIN: Greg Wetstone, what’s your view?
MR. WETSTONE: I would characterize what I just heard as a little more optimistic for an extension in the lame-duck session than in the next Congress, at least that’s where I am. I feel like we have a pretty good shot to get this done in the lame-duck Congress. It will be harder to extend the section 1603 program in the next Congress given the change in leadership in the House and the ugly dynamic in some of the House races where members who supported the cash grant program were specifically targeted for it in hostile ads.
DOE Loan Guarantees
MR. MARTIN: John Shelk, we were talking before we went live about the outlook for an extension of the DOE loan guarantee program. Projects must be under construction by September 2011 to qualify for loan guarantees. Some developers, particularly of offshore wind farms, would like to have more time. What do you think?
MR. SHELK: There will be heightened scrutiny of all of the stimulus programs. The loan guarantee program will be harder to extend than the cash grants. You don’t need to look farther than a leaked White House memo about which the Wall Street Journal reported last night on its website to understand why. The memo questioned whether it makes sense to keep even the existing spending authority in place for that program. However, this is a discussion about the effect of the November election. Even if the election had turned out a little differently, some of these requests would have faced the same challenges because of growing concern about the federal budget deficits, the role of government and all the things we heard during the campaign.
MR. MARTIN: Greg Wetstone the leaked White House memo wasn’t very complimentary about the loan guarantee program. Was it suggesting shifting money to something else?
MR. WETSTONE: The memo reflects an internal debate within the White House about whether the standby spending authority for the loan guarantee program might be better used elsewhere, like for more Treasury cash grants. Obviously the Treasury grant program is a priority for the renewable energy industry, but we would not want to see the loan guarantee program cut short. We would like to see it work more effectively.
MR. WEISGALL: I think it’s important to recognize that if there is not bipartisan agreement on these issues—and this is going back to the tax extenders—nothing will get done on them in the lame-duck session. One Republican staffer suggested that the lame-duck session could last for three hours. The point is that with the big gains in the House and Senate, the Republicans have no incentive to compromise on policy. The lame-duck session will be a very focused and narrow session limited to absolute must-pass resolution like the continuing resolution to keep funding the government beyond December 3.
MR. MARTIN: Joe Mikrut, do the election results make an extension of production tax credits more likely or less likely?
MR. MIKRUT: I think the election results are a neutral factor. The production tax credits have been extended in the past both when Republicans and Democrats were in control. Support for renewable energy breaks down more along geographic than partisan lines. The issue will be the larger approach the Republicans take to trying to bring the federal budget deficit under control. They have to decide whether they can afford to continue to extend not only these tax credits but also the other 70 or 80 provisions that are expiring almost on an annual basis.
National Renewable Energy Standard
MR. MARTIN: Jon Weisgall, what effect will the election have on the push for a national renewable energy standard?
MR. WEISGALL: Senator Susan Collins (R.-Maine) was right when she said we don’t do comprehensive well. President Obama suggested in his press conference yesterday that we managmay end up having to develop an energy policy incrementally in small pieces. One big piece could certainly be a federal RES or renewable electricity standard. I think the major impact of the elections will be to turn that RES into a CES. In other words, the elections will turn the renewable electricity standard into a clean energy or clean electricity standard that would include nuclear, carbon capture and sequestration and other things that go beyond renewables. This is more in keeping with the Republican mantra of all of the above. It is a significant change in focus. A federal renewable standard has a goal of promoting renewables. A clean energy standard has a broader goal of reducing greenhouse gas emissions. MR. GLICK: Two years ago, I participated in the same discussion, and I basically said it was a done deal that Congress would enact a national renewable energy standard. So maybe I should stay away from making any predictions this time, but I think Jon Weisgall is exactly right. The chances are slim for a renewable energy standard to get done in the lame-duck session. We need to start thinking more broadly in the renewable energy industry about working with some other groups such as nuclear and clean coal toward a broader clean energy standard. There seems to be enough support for a broader standard among Republicans in both the Senate and the House. If an energy bill moves in the next Congress, we have a decent shot of getting a clean energy standard into it that might work for everybody.
MR. MARTIN: What percent clean energy, Rich, and by when? Is it 17% by 2020? 15%?
MR. GLICK: If you add these other technologies, the percentage will have to be higher than the 15% by 2020 that was being discussed earlier when this was just a renewable energy standard. You would need something like 25% to 30% by 2020. Senator Lindsey Graham (R.-South Carolina) proposed a broad standard earlier this year that had a much higher number than the RES proposals.
MR. MARTIN: He backed away from the proposal when it came time actually to push it. He was being heavily criticized by Republican leaders in South Carolina for trying to work with Democrats.
MR. GLICK: That’s true, but when Senator Bingaman (D.-New Mexico) and Senator Brownback (R.-Kansas) offered a bipartisan renewable energy standard a few weeks ago, Senator Graham offered his bill again as a counter proposal. I think he still supports the proposal, although I don’t know whether the grief he received at home for trying to work with Democrats on carbon will carry over to the energy standard as well.
MR. MARTIN: Isn’t the idea that any of this will get through the next Congress something of a pipe dream given what Republican leaders have been saying in the last two days? Senator McConnell (R.-Kentucky), the Republican leader in the Senate, said number one goal of Republican Senators is to deny Obama reelection in 2012. If you listen to a lot of the newly elected House members, they insist they are not coming to Washington to compromise.
MR. SHELK: I think what Rich Glick said is absolutely right on the mark. If all the different fuel groups can come together on some kind of clean energy standard, then that may be something that both the parties can get behind in Congress. The details will matter. One is how will any federal clean energy standard preempt or not preempt the individual state renewable portfolio standards that already exist. Another detail is how any program affects the playing field on which independent generators and regulated utilities compete.
MR. WEISGALL: I think a lot of what we heard during the campaign was campaign rhetoric. I mean, in addition to being demeaned as compromisers, people were being called whores and witches during the campaign. Now it is time to govern. A lot of Republicans realize they can’t merely continue throwing hand grenades now that they are in charge. One strong message from the election—with independents once again throwing the bums out—is we are electing you to go to Washington to get something done. If that is what happens, then a divided government makes sense.
MR. WETSTONE: We are in a very polarized place in our politics in this country. The question is whether the election did anything to change that. I think it will take time for the bruises of the last campaign to heal. If we see significant legislation start to move, it will not be this spring or summer but more likely next fall or winter. On the RES, the outlook will depend on who ends up as the top Republican on the energy committees in the House and Senate. Do we end up with Joe Barton from Texas or Fred Upton from Michigan chairing the House energy committee? Does Lisa Murkowski from Alaska, who has shown a willingness to work with the Democrats, still retain the top spot on the Senate energy committee, or does it go to a more doctrinaire conservative, Senator Burr from North Carolina? The bottom line is there may be a path forward, but I don’t see it happening quickly.
MR. MARTIN: Let’s move to carbon. President Obama confirmed yesterday that cap and trade is dead. The immediate issue on the table is whether Congress will block the Environmental Protection Agency from acting on its own through regulations to control carbon. Rich Glick, what do you think?
MR. GLICK: The votes are clearly there in the House and possibly in the Senate in the next Congress to impose a moratorium on any EPA action to control carbon. The next question is whether the president would veto any such moratorium. It is not clear he would as a veto would complicate his reelection effort in 2012, particularly in the industrial Midwest. What I suspect will happen is the president may pull back the regulations for a couple years until after the 2012 elections.
MR. WEISGALL: Senator Lisa Murkowski (R.-Alaska) tried to stop the process this past summer with a resolution that failed. Senator Jay Rockefeller (D.-West Virginia) has been promised a vote on his bill to impose a two-year time out, but I think that effort is now moving into the background as Republicans start looking at using appropriations measures to block EPA from moving forward. You may recall that the Republican Congress blocked EPA from spending any money during the Clinton administration to implement its rules on increasing mileage standards for US vehicles. The thought is that it will be harder for the president to veto a broad appropriations bill that cuts off funding for implementing rules on carbon than to veto the kind of standalone measure that Murkowski and Rockefeller were offering.
MR. SHELK : The appropriations process might be easier to pursue, but any moratorium imposed through an appropriations bill would remain in place only for one year—not two. Even if Congress imposes a moratorium on enforcement of the EPA greenhouse gas regulations, there are other significant new EPA regulations not specifically directed at greenhouse gas emissions, but that would have an impact that is maybe even as great or at least close to as great an impact as the climate regulations. I am referring to new coal ash rules, water intake rules and air transport rules. As analysts have started to model them, the effect is a significant number of retirements of older coal-fired power plants. While the political battle has been on the greenhouse gas front, it may be more symbolic than real. The incremental effect of the greenhouse gas regulations may not be as great as first thought.
Mr. WEISGALL: What happens on carbon is more likely to be decided in the executive branch and the courts than in Congress, with the exception that cap and trade seems dead. President Obama said yesterday that cap and trade is only one way to deal with the problem, and he is right. There are a lot of indirect measures that this country has taken, like the stimulus programs and longer-term tax subsidies for renewable energy, that affect the choice of fuel types for generating electricity.
MR. MARTIN: If Congress votes to block the EPA regulations and Obama vetoes the bill, are there enough votes in the House and Senate to override the veto? It takes a two-thirds vote by each house.
MR. WETSTONE: I would be surprised if you saw an override in the Senate. Unless this is something that is negotiated as part of a larger compromise on energy policy, I would also be surprised to see the moratorium get all the way to the finish line. The more likely outcome is that the EPA tailoring rule will bog down for a while in the courts.
MR. MARTIN: Our environmental lawyers point out that anybody looking for a boost from regulations to control carbon will have to wait some period of time because such regulations ultimately end up in the courts and then EPA itself must come up with a definition of best available control technology. That, too, takes time. Let’s move to the next topic. Are there any big winners from the election —- for example, nuclear energy?
MR. GLICK: Nuclear energy and maybe some clean coal technologies and natural gas might be considered winners. However, the overriding issue that will affect the extent to which anyone will be able to get new or renewed government incentives is the federal budget deficit. I don’t see the next Congress spending wildly on any new technologies. We are going to have to look for more creative solutions that do not rely on tax or spending programs to promote those technologies.
MR. WEISGALL: Another theme of the incoming Republicans is a smaller role for government. This will have an effect on the willingness of the next Congress to fund energy research and development, for example. Maybe tax incentives are in a special category because of Republican support for tax cuts, but it is a double whammy for spending programs because of both the deficit concern and the concern that government is getting involved in things that are best left to the private sector.
MR. SHELK: Let’s not lose sight of the fact that there is more generating capacity today than there is demand. Virtually anything new will be more expensive than what we already have. Many people will argue that it is better to get the most out of what we already have rather than artificially increase supply at a time when all the projections push us out to mid-decade or beyond when additional generating capacity will be needed.
MR. WETSTONE: If nuclear or any other technology is going to get a new big leg up, it would require Congress to act, and that means changing the dynamics to a point where the political parties work together and actually get something done. If that happens, renewables will be helped as well. We all sink or swim together.
MR. MARTIN: So the default position is little new gets done unless it does not involve money. Will there be an energy bill in the next Congress and, if so, what is it likely to contain? Will we see anything done, for example, on transmission?
MR. WEISGALL: I think there is a real opportunity for something approaching a comprehensive bill, notwithstanding the comment I passed along earlier by Senator Collins that Congress does not do comprehensive well, and by “comprehensive,” I mean a lot of things except cap and trade. The last big energy bill was in 2005. The Energy Policy Act that year had 18 separate titles. Ultimately, Congress will have to put together the pieces of a puzzle in a way that satisfies different constituencies. It will have to have something for nuclear, something for carbon capture and something for renewables. I could see an energy bill that has at its core an overall sense of weaning us off imported oil. I think there can be agreement on support for electric cars, support for compressed natural gas cars, more R&D funding for some of the game changers that will not get done if left to the private sector and more incentives for carbon capture and sequestration. There can be agreement on stronger energy efficiency measures. I deliberately did not answer your question on transmission. I think Congress is stalled on the three “P’s” of planning, permitting and pricing. The Senate stalled last year primarily on the pricing question, the question of cost allocation. The action on transmission is shifting to the Federal Energy Regulatory Commission. If Congress doesn’t like what FERC does, it can step in.
MR. GLICK: There have been several attempts over the last few years to legislate on transmission issues, especially transmission access for remotely-located generation such as renewable electricity. The problem is there is way too much disagreement among regions and among the political parties. It is almost impossible to legislate effectively on these issues. So I think everyone has decided to punt the issues to FERC and, as Jon Weisgall said, if people are unhappy with what FERC does, they may come back to Congress to block it.
MR. SHELK: A major difference between John Boehner, who is expected to be the new speaker in the House, and his predecessors like Pelosi and Gingrich, is he is the first speaker in quite some time who is a former committee chairman and a ranking member. He will defer more to the committees. Therefore, who becomes chairmen of the energy committee in the House will be very important.
My own sense is that Jon Weisgall may be a little optimistic. I think a comprehensive bill has a chance. It would have to be comprehensive enough to move but not be so loaded down as to turn off members who criticized measures like health reform and financial sector reform for their sheer weight. I don’t know whether the correct term is a thin comprehensive bill or a bill that is comprehensive as in wide but not deep.
I don’t think you can just load it up as in the past with something for everyone because the bill will become too big, be too costly and be perceived as helping projects that are going to move anyway or tipping the scales in ways that ought to be left to the private sector. On the other hand, something that does something relatively surgical to help each of the fuels has a chance.
MR. WEISGALL: Coming back to transmission, transmission access and development are the Achilles heel for long-term renewable energy development. I have said this before, but you can’t love renewables and hate transmission. Transmission remains a huge challenge. A lot of PowerPoint presentations have been made to members of Congress and their staffs, yet not a lot of new transmission lines have been built. I defer to Joe Mikrut on this, but I wonder whether it is possible to do something to spur construction of new transmission capacity through the tax code. I know there are a number of renewables projects, especially in California, that are being held up because of the lack of transmission access.
MR. MIKRUT It is hard to find a way to do it through the tax code. Tax provisions work best to address a lack of capital. That is not what is preventing construction of new transmission lines. The problems are siting and cost allocations, and these don’t lend themselves as readily to help through the tax code.
MR. MARTIN: The IRS made it easier for transmission companies by opening the door in a private letter ruling three years ago to operate with just one level of tax through a real estate investment trust or master limited partnership.
Joe Mikrut, a bipartisan commission that President Obama appointed is expected to report in December on ideas for bringing the federal budget deficit under control. One thing that has been under discussion is cutting the corporate tax rate but then paying for it by getting rid of various tax incentives. Do you think this commission’s report will go into the dust bin or does the rate reduction have legs?
MR. MIKRUT: At least half of what the commission is looking at has legs. The proposals that would pay for a corporate rate reduction are the most viable. I’m not sure the corporate rate reduction itself has legs.
The focus in the next Congress will be on deficit reduction. Look at what happened to the bill that Charlie Rangel introduced a few years ago when he was chairman of the House tax committee and that he called the “mother of all tax reforms.” He proposed a corporate rate reduction offset by various measures to broaden the corporate tax base. Congress ended up enacting the base broadeners on a piecemeal basis over time to pay for other things, while the rate reduction languished. I fear that could happen again.
MR. MARTIN: And are there any potential base broadeners that would affect the renewable energy industry?
MR. MIKRUT: No, I believe the focus will be largely on international reforms. There has been a lot of dialogue about moving jobs offshore.
One area that Congress could address to make a meaningful dent in the deficit is accelerated depreciation. However, lengthening depreciation is completely counter to what the president and Congress have proposed recently as a stimulus for business investment. Congress has routinely extended the bonus depreciation provision that first became law in 2003, and the president has proposed doubling that to give immediate expensing for a short period of time.
The president has proposed limiting some tax preferences for oil, gas and coal. Those proposals did not get much traction in Congress when the Democrats were in charge. They are likely to have even less traction with Republicans in control of the House.
MR. MARTIN: I have one more question before we turn to questions from the audience. The industry may refocus on what can be done to promote renewables at the state level. For example, the action on carbon could shift to the developing Western carbon market among seven western states and four Canadian provinces and the RGGI initiative in New England and some mid-Atlantic states. It also could shift to increasing renewable portfolio standard targets at the state level and getting a few more states to adopt RPS statutes.
Is this likely to be fertile ground given the number of state houses that shifted to Republicans? Is there a risk that some states might scale back their RPS targets?
Is there a risk that a Congress on the warpath against federal action on carbon might make it harder for states to regulate carbon?
MR. WETSTONE: We are optimistic that the industry will be able to make further progress at the state level after seeing Proposition 23 defeated in California and a very pro-renewables candidate, Jerry Brown, elected governor. There is good reason to hope that the state legislature in California will be able to reach agreement on a 33% target for renewable energy by 2020. California is an important state for the industry and so what is done there has an impact.
Colorado just elected a new governor, John Hickenlooper, who is also a very strong renewables advocate.
MR. GLICK: I think Greg is exactly right. The renewable portfolio standards at the state level are still looking pretty strong, and we are hoping to expand them in some states. However, there is a concern about state energy tax incentives for renewable energy. The states are facing enormous budget pressures. There is a risk of states starting to cut back or repeal some of their tax incentives for renewable energy as a cost-cutting move. We have already started to see it.
MR. WEISGALL: I agree with Greg to an extent. The Republican tsunami kind of stalled crossing the Sierra Nevada or perhaps even when it got to the Rocky Mountains. I don’t think we can say the same in the eastern United States. There is a risk, with at least seven state legislature not to mention the governorships, changing hands to Republicans, that a lot of these state initiatives could become stalled—certainly not the ones in the West, but others could.
MR. MARTIN: Moving to audience questions, what are the prospects for new tax subsidies for energy storage projects? Joe Mikrut?
MR. MIKRUT: Energy storage proposals have been popular for quite a while, but it will take something like a comprehensive energy bill that has several titles to it, one of which is a tax title, before this has a chance. One problem will be trying to find a way to pay for it that is acceptable to both Republicans and Democrats.
MR. MARTIN: Ironically, I spent the last two days in meetings or calls with the IRS on whether energy storage added to wind farms qualifies for the existing subsidies.
MR. WEISGALL: A number of Republicans, including Lamar Alexander (R.-Tennessee), list energy storage as one of the areas where there can be an agreement. Energy storage is a game changer that could have a major impact on carbon policy. I agree with Joe that the big impediment in the current climate is cost, but energy storage appears to be a high priority for both parties.
MR. SHELK: I think the days of incentivizing things simply to say you are for them are probably over. The greatest game changer in the energy sector as it relates to electricity in the last five years is the shale gas development that had absolutely no special subsidy or government catalyst other than whatever tax provisions apply generally to that industry. Remember that the Republicans want to move to an “all of the above” approach to energy policy. You can’t incentivize all of the above; the overall landscape remains unchanged.
MR. MARTIN: Another audience member asks with Republicans now in control of the House, will they shut down spending for R&D on energy?
MR. SHELK: Not shut down, but there may be some trimming, perhaps back to levels of such spending in 2008.
MR. MARTIN: A listener asks what is the view of the new leadership and staff of the House Ways and Means Committee toward tax incentives for renewable energy?
MR. MIKRUT: I think they are less enamored with tax credits in general that are refundable, which means things like the section 1603 program may be more challenging to extend. On the other hand, the tax subsidies for renewable energy have been renewed from one Congress to the next no matter whether Republicans or Democrats were in charge.
MR. WEISGALL: The incoming chairman, Dave Camp (R.-Michigan), has a number of wind and solar manufacturers in his district. He has been friendly to the industry.
MR. MARTIN: Several listeners ask what are the prospects for a new clean energy bank?
MR. WEISGALL: I put that in the category of perhaps too far a stretch in the new atmosphere.
MR. WETSTONE: I think that gets caught up in the same dynamic about whether there is a comprehensive energy bill. If there is such a bill, perhaps in early 2012, maybe it has a chance.
MR. SHELK: The advocates for a clean energy bank may be helped by the frustration with the DOE loan guarantee program. I know the problems are not entirely the fault of the Department of Energy, but they suggest any such program might be better moved to an independent agency.
MR. WEISGALL: The term itself—a government clean energy bank—smacks of a greater government role. That’s not a winner these days.
MR. SHELK: The Fannie Mae of energy wouldn’t sell.
MR. MARTIN: Moving to another audience question, Rich Glick, you mentioned that ideas for boosting renewables that do not involve spending money might have a better chance in the new Congress. One of the themes Republicans have always had is cutting government regulation. Do you foresee possible steps like streamlining the National Environmental Policy Act where the Republican House might act?
MR. GLICK: I think the chances of that happening are very, very slim given the fact that the Democrats control the Senate, and I don’t think that President Obama would sign such a package. Having said that, there is growing concern among renewables developers about how difficult it is to do projects on public land under the current regulations by the Department of Interior. There will be an effort to streamline some of those regulations.
MR. WEISGALL: Here is an example where a Republican House could be useful for renewable energy just from an oversight perspective. Doc Hastings (R.-Washington) is the new chairman of the House Natural Resources Committee. There may be pressure on Interior to move more quickly on leasing and permitting issues. None of this will single out renewables, but any push to expedite things under an all-of-the-above approach to energy policy could be a plus for renewables.
MR. MARTIN: Joe Mikrut, someone asks whether you foresee any action to allow master limited partnerships to be used for renewable energy projects?
MR. MIKRUT: Master limited partnerships are an idea that we may need to explore a little bit more. There were some attempts in the past to authorize their use by renewable energy companies. There may be another attempt in the new Congress.
MR. MARTIN: The tax committee staffs have squashed the idea in the past. Congress spent years trying to shut down tax shelters. They view any move to expand the use of master limited partnerships as reopening the door to retail tax shelters. Is there any reason to think the Republican staff will be more amenable?
MR. MIKRUT: There will be challenges, but perhaps not as insurmountable as in the last Congress.
MR. MARTIN: Here is the last question. A number of listeners asked questions along the same lines. Before Congress recessed for the election, the House passed a bill to authorize the US to impose countervailing duties on products from any country, like China, whose currency the US feels is being manipulated to give that country’s products an edge selling into the US market. Earlier in the year, there were complaints about the Treasury cash grant program from several Senators—Senator Schumer (D.-New York) was probably the most outspoken—because grants are going to projects that use foreign-made equipment. He had his eye in particular on a large wind farm in Texas that plans to use Chinese turbines. Is this furor about China going to die down now with the Republicans in charge in the House or will we hear more about it in the new Congress?
MR. MIKRUT: I think the complaints will continue about China and about jobs being exported to other countries. Both parties are very much interested in job creation.
MR. MARTIN Do you see that complicating the drive to renew the Treasury cash grant program?
MR. MIKRUT: No, I think that story rose and died, even though you saw it a little bit in some of the election ads. The National Renewable Energy Lab has shown through its studies that the section 48C tax credits for new factories that make wind turbines, solar panels and the like and the section 1603 cash grants actually promoted and saved jobs in the US.
MR. WEISGALL: There is a conflict between some US environmental goals and some of our technology goals. We want clean energy. We do not have enough manufacturing capacity here to produce all the wind turbines we need. We want a Buy America provision, but at the same time we complain about local content in some of the Chinese regulations. We complain about the Chinese keeping their currency low, and yet we print $600 billion more dollars. These are complicated and tough issues.
MR. GLICK: The bigger concern with China, at least in the renewables sector, is that China has a strong and consistent policy for promoting use of renewable energy while the US blows hot and cold on renewables. Consequently, the investment is going to China. China ends up with the manufacturing base. In those years when we decide to promote renewable energy, we end up having to buy the equipment from China because no one will set up shop in the US to manufacture for a US market that ebbs and flows. The irony of the criticisms against the Treasury grant program is the Treasury grant program actually increased US manufacturing because it created a stronger domestic market.