The Energy-Climate Complex
An Energy Agenda for the New Congress
In spite of bipartisan support, numerous critical energy initiatives languished in the previous congressional session. The need to take action is even more pressing for the current Congress.
At the beginning of this new Congress, it is already becoming clear that energy policy will have a major place on the agenda. Part of that is because the president made clear in his State of the Union Speech that he will give energy a major priority in his administration. In part, it is because our energy security is dependent on overseas supplies and global stability. The events that we have seen unfold in North Africa and the Middle East are stark reminders that the world is an unpredictable place. Whenever geopolitical events potentially affect our access to affordable energy supplies, it is a spur to consider energy policies that might reduce those geopolitical risks.
But perhaps more important than any of those reasons is the competitive pressure the United States is experiencing from other major world economic powers as they take a very leading role in clean energy markets. According to Bloomberg New Energy Finance, new investment in clean energy globally reached nearly a quarter of a trillion dollars in 2010. That was a 30% jump from where it was in 2009, and a 100% increase from the level in 2006.
China alone invested $51.1 billion in clean energy in 2010, making it the world’s largest investor in this sector. China now manufactures over half of the photovoltaic modules used globally. In 2010, China installed about 17 gigawatts of new wind capacity, roughly half of the total capacity installed globally, with virtually all the equipment being supplied by its domestic manufacturers.
But the concern about the competition for clean energy jobs is not just about China. Europe also made major strides last year toward competing in these markets. Countries such as Germany, the Czech Republic, Italy, and the United Kingdom, have emphasized small-scale distributed electricity-generation projects. In Germany, 8.5 gigawatts of new photovoltaic capacity were added in 2010. The United States must be aware of these initiatives as it considers its course of action.
It is also significant that other countries consume energy more efficiently than does the United States. According to the International Energy Agency, Japan, the United Kingdom, and Canada are all ahead of the United States in implementing policies to make sure they get the most out of every BTU that they consume. Japan, for example, has its Top Runner program, which encourages competition among appliance and equipment manufacturers to continuously improve the efficiency of those appliances and that equipment.
So the question is: How does the United States respond to this competition for clean energy jobs? I believe that to remain at or near the forefront of this strongly developing market, the United States needs to do at least four things:
- First, it needs to ensure that it remains at the forefront of energy R&D, because innovation is the source of its greatest competitive strength. The president made that point in his State of the Union Speech and in other forums as well.
- Second, it must ensure that it has a strong domestic market for clean energy technologies. Without clean energy market pull in the United States, there will not be the incentive to manufacture and deploy these technologies here.
- Third, it has to ensure that it has the necessary financial infrastructure and the incentives to provide the capital needed to build advanced energy technology projects.
- Finally, it needs to have explicit policies to promote the development of U.S. manufacturing capabilities for these clean energy technologies.
I think these four items or elements should be at the heart of whatever comprehensive energy legislation we undertake in this Congress. Let me say a few more words about each of them.
The first item to consider is support for advanced energy technology R&D. The United States has traditionally led the world in many of the characteristics that are essential to having an innovation economy. It has the predominant share of the world’s best research universities. It is the world’s largest source of financial capital. It has a disproportionate share of the world’s leading innovators in high technology. But these advantages are shrinking rapidly. In 2007, U.S. energy research expenditures were at about 0.3% of gross domestic product (GDP). Japan was at about 0.8% of GDP, and even China was at about 0.4%. Since then, overseas competitors have significantly increased their research investments in energy, while U.S. investments in this area have grown only modestly. It is clear that if Congress is to put together any kind of bill that deserves to be labeled as comprehensive energy legislation, we need to address the huge gap between where the nation’s investment in energy technology research is and where in fact it ought to be.
In his State of the Union address, President Obama correctly identified this as a major priority for the appropriations process this year. He followed up on that speech by submitting a budget proposal for the Department of Energy (DOE) in February that increased the department’s budget by nearly 12%, with strong funding increases proposed for basic energy sciences, the Advanced Research Projects Agency–Energy, and expanded technology programs for solar, wind, geothermal, and biomass energy. And he did all this at a time when he was proposing government-wide budget cuts to deal with the deficit. His willingness to make thoughtful and forward-leaning investments in energy R&D demonstrates the priority he has given to this area.
The second item is ensuring robust domestic demand for clean energy technologies. It is not enough just to support the research. Getting clean technologies developed, manufactured, and deployed in the United States will require a robust and certain demand for clean energy in the marketplace. This reality was underscored to me during a trip recently to Silicon Valley. I spoke to various people there involved in financing and developing clean energy projects. The message I heard consistently was that uncertain U.S. demand for clean energy is preventing many promising clean technologies from being developed in this country. Companies will not establish a manufacturing base where they do not see a strong market. Private capital sources are, in fact, exerting intense pressure on U.S. clean energy innovators to establish their manufacturing base overseas, where government policies are creating this strong clean energy demand.
We have to take seriously the marketplace reality that the high-wage clean-energy manufacturing of the future will be located both close to demand and in countries with the most favorable clean energy policies. My desire is to see the United States lead the world in renewable energy manufacturing, so that all of the solar panels and wind turbines that are installed around the country are not stamped “Made in China” or “Made in Germany.” This is the key reason why I have long supported a Renewable Electricity Standard. The country needs to have long-term market predictability for renewable electricity. On-again, off-again production tax credits are no match for the comprehensive approaches being put in place by other countries.
The third item is support for deployment. Although end-use demand is certainly one of the first things an entrepreneur or potential investor looks at when deciding where to locate operations, the analysis does not end there. There is an equally important question: Is there a path to full commercialization of this technology? How can one build the first-of-a-kind project (or the first-few-of-a-kind projects) using a new clean energy technology to demonstrate its actual cost and performance? This is what the private sector wants to see before it will invest in a technology.
This is a particular problem for clean energy technology, because the capital costs in this area are higher than those of previous U.S. high-tech success stories such as information technology or biotechnology. No investor in today’s marketplace can match these capital requirements alone. Asian and European countries have set up institutions to address the problem. They have already successfully lured companies to commercialize and manufacture their U.S.-developed clean energy technologies in those markets. The United States needs to set up similar institutions if it hopes to support clean energy jobs at home.
The fourth element is support for manufacturing. If the nation wants clean energy jobs, it needs to have policies to encourage domestic manufacturing. In addition to providing a predictable market for clean energy and a robust financing capability for first-of-a-kind projects, domestic companies need to have incentives for manufacturing the critical components for clean energy technologies. Other countries, most notably China, have complemented their clean energy market standards with robust tax incentives and other fiscal subsidies specifically targeted at manufacturing clean energy components. And as a result, the United States has gone from being a world leader in producing clean energy technologies and enjoying a green trade surplus of more than $14 billion in 1997, to a green trade deficit of nearly $9 billion in 2008. The country cannot afford to sit idly by as its economic competitors move clean energy manufacturing steadily overseas, and deprive Americans of solid job opportunities.
So these are four key strategic elements that need to be included in any energy legislation in this Congress, if an energy bill is to help us compete in global energy markets in the future. None of these individual ideas are new, but their interconnection is now more apparent. A few years ago, it seemed possible that the country could do just one or a few of these things and be successful. It is now clear that action is required on all four of them and on a level that is competitive with what other countries are doing.
Let me now describe some of the specific policy initiatives that I think will be very timely to pursue in the Senate this year. Most of these initiatives will be items I hope to champion in the Committee on Energy and Natural Resources. This is not intended to be an all-inclusive list. The committee has 22 members, many of whom have just been appointed. I anticipate numerous meetings and extensive bi-partisan dialogue over the next few weeks as we work out our legislative roadmap for this Congress. But the following topics are issues that I think are particularly crucial for us to address. They are also issues where we did have strong bi-partisan consensus in the 111th Congress. This gives us a good place to start our deliberations this year.
The cheapest energy is the energy we do not have to use by operating more efficiently. So, clearly where I’d start with is energy efficiency. In the last Congress, we had a very productive dialogue in the Energy Committee and among businesses, manufacturers, and efficiency advocates interested in appliance and equipment energy efficiency. The result was a package of legislative provisions that codified consensus agreements to update certain existing appliance standards, to adopt new appliance standards, and to improve the overall functioning of DOE’s efficiency standards program. Many of these efficiency provisions were part of the comprehensive energy bill we reported out of committee in 2009. Others were subsequently approved by the committee or incorporated into bipartisan bills.
These sorts of standards are essential if U.S. appliance manufacturers are to remain competitive in world markets, which will increasingly demand highly efficient appliances and equipment. By ensuring a strong domestic market for energy-efficient products, we keep innovation and jobs here in the United States, while realizing significant energy and water savings and major cost savings to the consumer.
Obviously we had great difficulty in getting any sort of legislation though in the lame duck session of the last Congress; we were not able to enact these consensus provisions. We had overwhelming broad bipartisan support, but not unanimous support, in the Senate. This is an important piece of our early agenda in this Congress, and I have introduced a follow-on bill along with Senator Murkowski and other colleagues. At a recent hearing before the Energy Committee, the bill was broadly endorsed by industry, consumer, and environmental groups. I look forward to advancing it to consideration by the full Senate.
There is also much that can and should be done to promote efficient use of energy in other parts of the economy. In residential and commercial buildings, a broad coalition supported Home Star, a program for residential building efficiency. Similar interest was apparent with commercial buildings in a program called Building Star. I plan to continue to advance the goals of these proposals in this Congress, although the form in which we provide funding to promote these goals may need to change. In transportation, two proposals from the previous Congress deserve a closer look. First, we should provide a greater point-of-sale incentive to vehicle purchasers, with dealership rebates that would be larger for the more fuel-efficient cars. Senators Lugar, Snowe, and others cosponsored this legislation with me in the previous Congress. A second set of proposals dealt with diversifying the sources of energy that we use in transportation. This bill, which was proposed by Senators Dorgan and Alexander, passed out of the Energy Committee on a 19-4 vote.
Energy efficiency in manufacturing and industrial operations is also important. The legislation reported by the committee last year contained a comprehensive program on manufacturing energy efficiency that had good bipartisan support. Again, I hope we can move forward with this legislation.
Another priority is the one highlighted by the president in his State of the Union speech: moving to a cleaner energy mix in the way we generate electricity. For a number of years, I have advanced a proposal for a Renewable Electricity Standard to ensure long-term and predictable demand for renewable clean energy resources. The president proposed to expand on that concept by including a broader suite of technologies such as nuclear energy, coal with carbon capture and storage, and natural gas generation. The president’s stated goal, as he described it, is to obtain 80% of the nation’s electricity from such clean energy sources by 2035. The White House has asked us to work with them to see how the provisions for this Clean Energy Standard would be developed. Obviously, there are a lot details to work out. I am pleased that the administration has reached out to the committee to consult on this subject.
Perhaps no topic garnered more scrutiny during the previous Congress’s markup that the Renewable Electricity Standard. I plan to work with colleagues on both sides of the aisle in the committee to determine how we can craft a workable legislative proposal to achieve what the president has set out as his goal. As we do so, a number of key design questions will need to be answered: What counts as a clean energy technology? How does the proposal account for existing clean energy sources? Does the credit trading system that we have developed for renewables in our proposal for renewable resources fit with these other resources?
With respect to financing assistance for energy projects, I think there are at least three top priorities for early attention in this Congress: reforming the current loan guarantee program for clean energy projects, providing financing support for advanced energy manufacturing in this country, and providing reasonable stability and predictability in the tax provisions that apply to clean energy projects and technologies.
The first of these is to replace the current loan guarantee program for clean energy technologies with a Clean Energy Deployment Administration. CEDA would be a new independent entity within DOE, with autonomy like the Federal Energy Regulatory Commission has. It would provide various types of credit to support the deployment of clean energy technologies, including loans, loan guarantees, and other credit enhancements.
This proposal received strong bipartisan support in the Energy Committee as part of the larger energy bill we reported. It also had a broad range of external support from clean energy developers, innovators, and venture capital firms. Fixing the problems of the current DOE loan guarantee program and ensuring that we have an effective financing authority for a broad range of clean energy technologies, including renewables, nuclear, energy efficiency, and carbon capture and storage, needs to be one of our highest priorities. I am committed to moving ahead with that legislation in this Congress.
The second priority in the area of financing assistance relates to encouraging the domestic location of manufacturing facilities and replenishing the fund to award tax credits under section 48C. This section provides up to a 30% tax credit for the costs of creating, expanding, or reequipping facilities to manufacture clean energy technologies.
The initial funding was vastly oversubscribed; the government received $10 billion in applications for $2.3 billion in tax credits. This is a powerful demonstration of the potential for clean energy manufacturing that exists in this country. In the previous Congress, Senators Hatch, Stabenow, and Lugar joined me in filing the American Clean Technology Manufacturing Leadership Act. This bill would have added another $2.5 billion in tax credit allocation authority. President Obama has since called for an additional $5 billion. I hope we can help reintroduce bipartisan legislation to ensure this credit’s continuation at the president’s proposed level. Although this is a matter that will be handled in the Finance Committee, it is an important near-term bipartisan opportunity in this Congress.
The third essential element is to bring stability and predictability to this part of the tax code in order to attract private capital to clean energy projects. If you look at this part of the tax code, many of the energy-related tax incentives will expire at the end of 2011, including the section 1603 program; the credit for energy-efficient residential retrofits; the credit for construction of new energy-efficient homes; the credit for energy efficient appliances; and the incentives for alcohol fuels (mostly ethanol), biodiesel, and renewable diesel. Other energy-related tax incentives are set to expire at the end of 2012, 2013, and 2016.
One other major challenge and priority for the committee in this Congress will be to address the proper and effective regulation of energy development to order to protect the public health and safety and the environment. I have discussed this with Michael Bromwich, the director of the Bureau of Ocean Energy Management, Regulation, and Enforcement, and he is working very hard to get his arms around this critically important issue.
One of the important lessons learned from the National Commission on the Deepwater Horizon Oil Spill is that in the long run, no one—least of all the regulated industry—benefits from inadequate regulation and underfunded regulators. In the aftermath of the Deepwater Horizon disaster, the Committee on Energy and Natural Resources last June came together and unanimously voted out a bipartisan bill to address the key problems uncovered by our hearings on the disaster. Unfortunately, Congress did not enact our bi-partisan bill.
At its first hearing in the current Congress, the committee heard from the co-chairmen of the President’s Commission on their recommendations. I hope to introduce in the near future a bipartisan follow-on bill to last year’s legislation. I hope that we can repeat our bipartisan success of the previous Congress in developing a bill that recognizes the need to develop the rich resources of the outer continental shelf but also to minimize the potential impact on the marine and coastal environment and on human health and safety.
Finally, an item that I hope the Energy Committee can address early in this Congress deals with perhaps the nation’s most pressing energy security problem: the vulnerability of the electrical grid to cyber attack. A major disruption of the electric transmission grid, or the equipment it contains, as part of a cyber attack could have disastrous consequences. We need to ensure that adequate preventative measures are in place across the grid. The problem is that we don’t currently have mechanisms to ensure that these needed steps are being taken. The whole grid is as vulnerable as its weakest link. In the previous Congress, the Energy Committee twice passed legislation to address this need. The House of Representatives also sent a bill to the Senate on this subject, but again, due to the inability to process legislation in any mode other than unanimous consent in the Senate, we were not able to pass the legislation into law. I hope to work with the members of the committee on both sides to deal with this issue early in this Congress.
In conclusion, this Congress has before it an aggressive agenda of issues and proposals that relate to energy in all its forms and uses. At the same time, we face a daunting partisan environment in Congress for legislation of any type, as well as the added challenge of responding to higher prices for fuels and electricity that are being occasioned both by the energy demand created by global economic recovery and by instability in North Africa and the Middle East. My plan is to work to achieve bipartisan engagement with both the returning and new members of the Senate Energy and Natural Resources Committee, so that we make visible progress on a suite of energy bills that the full Senate could consider in the first several months of this year.
Jeff Bingaman is a Democratic senator from New Mexico and chair of the Senate Energy and Natural Resources Committee.