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Steven Cohen

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Clean Energy Caught in the Political Mire

Posted: 05/29/2012 8:24 am

A New York Times editorial on Memorial Day discussed America's progress in implementing renewable energy and expressed concern about Republican moves to reduce renewable energy subsidies from $44 billion in 2009 to $11 billion in 2014. The Times' editors are correct in expressing alarm, since these subsidies can provide the extra push needed to accelerate the transition from fossil fuels to renewable energy. This transition is critical to America's future economic well being and to sustainable development worldwide.

The transition to lower cost and plentiful renewable energy will happen some day, and in the end it will be the free market that delivers this new technology. But the pace of change can be accelerated with carefully designed and targeted subsidies. Such subsidies are typical of energy production. The oil depletion allowance enables oil companies for tax purposes to treat reserves in the ground as assets that will eventually be exhausted. A percentage of the value of the asset is subtracted from a company's taxable income. The rationale for this subsidy is that once the oil in a well is pumped out, we want to encourage industry to dig another well. This makes good sense as long as fossil fuels are our best option for generating a resource as critical to the economy as oil. It may even make sense as we begin the transition away from fossil fuels.

The point is that government policy encouraging private sector energy investment is not a socialist plot, but is as American as apple pie. The idea that government has no role in influencing private sector behavior is ideological nonsense and pure political rhetoric. So too is the idea that the oil companies have not benefited from public policy. Forget about oil depletion allowances -- how about the construction of the interstate highway system? How about the deduction for mortgage interest and property tax? Both stimulated increased use of fossil fuels. The high-energy American suburbs were the direct result of an impressive array of government policies and subsidies. So come on folks, enough with the anti-government baloney. Post-World War II American prosperity was a brilliantly orchestrated partnership between the public and private sectors.

I am not arguing that government is perfect. It's not. It wastes resources and focuses far too much on process than results, especially in Washington. But the right wing mantra that government is a beast that must be starved has only served to distract the public from real problems. Problems like the role of interest groups in policy making and the subtle corruption of 21st century influence peddling. Problems like government agencies that move too slowly and are poorly managed. Problems like deceptive elected officials who care more about winning the next election than speaking the truth.

In the case of energy the important issue is: What types of subsidies are needed? The issue of the oil depletion allowance revolves around the need to attract capital to oil drilling and the degree to which our energy mix continues to require petroleum. Since I don't see the internal combustion engine being junked in the next decade or so, we continue to need oil and so the immediate issue should focus on the requirements of attracting the capital needed to ensure an adequate supply of oil. Since capital flows toward the highest or safest rates of return and need not be invested in America, public policy must sometimes be used to encourage private sector investment in areas of national interest.

Which brings us to renewable energy. The long-term case against fossil fuels is obvious. While pollution and climate change are negative impacts that can and have been proven, the case against fossil fuels does not require one to value coast lines free of flooding, air that is healthier to breathe or ecosystems undamaged by fuel extraction. Fossil fuels are finite, and must be transported from the place they are found to the place they are used. Those are clear negatives. As fossil fuels get scarcer they will get more expensive. Energy generation at the scale needed to power a planet of ten billion human beings simply must be based on a technology more advanced than one that burns fossil fuels. That technological imperative will be addressed.

The transition to renewable energy will come to America. The question is, will the new renewable energy technologies be invented here, or will we have to buy them from foreign countries where governments have sophisticated and functioning public-private partnerships? Will we allow the idiocy of our anti-government ideology to destroy our ability to discover and deploy these critical new technologies?

We need a real and fact-based public debate on the type of policies and subsidies that are needed to speed the transition to a fossil fuel free economy. This transition will take at least a quarter century and we do not know how to bring it about. It is clear that we will need many billions of dollars in federal funding for the basic science and engineering. Corporations that are in the energy business will require the type of subsidies now being threatened by Congressional Republicans. We will also need to develop new subsidies as well. We need policies that encourage companies, localities and even families to adopt new technologies as they are brought to market. We will need regulation to ensure that the competition is fair and that the public's health, safety and welfare is not endangered by untested technologies. The U.S. has an admittedly imperfect regulatory scheme that governs the introduction and use of new drugs and medical technologies. While our approach to medical regulation is far from perfect, it has resulted in impressive advances in medicine. We need a similar approach to energy.

Instead, as the NY Times' editorial indicates, renewable energy, an issue critical to our economic future, is being subjected to the horror of Congressional and election year politics. We are not going to get very far in this discussion if we must continue to defend the very idea of government participation in energy development. It is not surprising that energy policy is the latest victim of the current ideological battlefield. Nevertheless, government has long been a player in energy development and that will continue after Election Day this November. The current discussion is not really about our national interest in transitioning to renewable energy, but is about political posturing and political power. What a shock.

 

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