Photo courtesy UNLV Photo ServicesT. Boone Pickens made his fortune in oil. Now he places his bets on clean energy, which gives Harry Reid something to smile about.
The problem with summits, as any world leader or mountain climber will tell you, is that you have to come down. Big inspirations have a way of getting lost in the workaday stuff of life. Revelatory visions wind up set aside or watered down in the course of implementation.
So when the National Clean Energy Summit pulled into Las Vegas last week, along with the more locally targeted UNLV Clean Energy Forum, it was notable that the festivities were short on poetry and long on curmudgeonly common sense. And when, near the end of the first day, UNLV President Neal Smatresk essentially said, Nobody gets out of here until we have a real plan, you could almost believe it was more than good leadership rhetoric.
I’m not sure whether the assembled grandees—including Sen. Harry Reid, oilman-wind-farmer-natural-gas-prophet T. Boone Pickens, tech pioneer and venture capitalist John Doerr, and former Clinton White House Chief of Staff John Podesta—had the chance to gather in the wee hours over some old Scotch and settle this whole energy-policy thing, so I’m here to help by throwing some of their most intriguing thoughts back at them.
1. Grow a home market
Kevin Smith, CEO of SolarReserve, is planning a 100-megawatt solar thermal plant near Tonopah that deploys the killer app of solar technology—storage of the sun’s energy in molten salt. But cutting-edge American companies like SolarReserve often have to sell their products abroad, in countries such as Spain that have clear and comprehensive policies encouraging the development, deployment and use of renewable energy technologies. The problem, Smith said, is that the United States has “no home market” for clean energy. The big political-economic buzzwords of the past two recession-riddled years have been innovation, energy independence and job-creation. But if the U.S. cannot grow a robust domestic market for renewable energy, those words amount to little more than campaign fodder.
Richard Kauffman, former CEO. of the green technology investment firm Good Energies, said that plenty of innovative American companies are ready to make an impact on the clean-energy sector. “They’re stacked up at the airport,” he said, “but they’ve got nowhere to land without a [home] market.” The consequences for U.S. businesses are stark: Without a home market, there’s little investment in American firms; without investment, the odds of a startup’s survival are long. And if the startup can’t survive and flourish, it isn’t going help us much in the jobs-and-diversification department. For American companies trying to absorb startup costs without sufficient startup capital, Kauffman said, the path to market “is not just a valley of death, it’s a Grand Canyon of death.”
Meanwhile, investment dollars wind up with foreign firms doing business in countries with mature clean-energy markets. But how can public policy help create a home market? Market-savvy panelists at both the summit and the forum said that the answers lie in tax and regulatory policies.
2. Institute a carbon tax
It takes money, a lot of it, to get a clean-energy technology firm across the “valley of death” from product development to solvency. Startup costs increase initial prices (in the case of solar energy, virtually all of the major costs are up front) and reduce competiveness with established fossil fuels. That’s why we need a carbon tax. The carbon-tax alchemy is simple: If fossil fuels are more expensive, consumers will be more likely to turn to renewables. That is, the carbon tax would create, in a single step, a domestic market.
At both the summit and the forum, people who make their living in the marketplace argued that a carbon tax is the best way for the government to give the market clear signals, reduce complex regulation, and let the free market get to work. “We need to put a price on carbon,” Doerr said. “That price signal would tell investors that renewable investments would be rewarded.”
Elon Musk, the young founder of electric car manufacturer Tesla Motors, made a convincing case that innovation is expensive, and that if we really want it to take root we have to find a way to ease its path to the marketplace. And easing the path doesn’t have to mean politically unpopular subsidies. “Tax carbon,” he said, “and you won’t need subsidies.”
But wouldn’t such a tax mean that the government is intruding into the free market to play favorites?
There’s a problem with the very premise of the question, which implies that there was ever a time when the government didn’t intrude into the energy market. “If you put together all the renewable incentives ever,” said Musk, “it still doesn’t add up to the oil tax credits just last year.”
Kauffman said the problem is precisely that renewables are not on a level playing field with fossil fuels. There is no way to sustain research and startup expenses and compete with established fuels on price without a carbon tax or targeted tax incentives. A 100-year head start, mixed with a legacy of supportive government policies (the interstate highway system, for instance, vastly expanded the national market for gasoline) has put fossil fuels in a virtually unassailable market position—at least until dwindling supplies cause oil prices to permanently skyrocket. By that time, the U.S. will have surrendered the renewables field to China, and we will be as dependent on Chinese renewable technologies as we are on Middle Eastern oil.
3. Maintain targeted tax incentives
Gary Hecimovich, an incentives specialist with Deloitte Tax, would like to see a carbon tax, but he doesn’t think we’re getting one anytime soon. The political will isn’t there, nor is the public understanding that a well-aimed tax can catalyze the free market. If we can’t get the carbon tax, he argues, we need to at least set clear and sustained tax incentive policies. If our goal as a nation is to decrease our dependency on foreign oil, reduce greenhouse gases and facilitate development of a job-creating clean-energy sector, then the tax code needs to reliably and consistently incentivize purchases of and investments in clean energy. Tax credits are in place for wind production through 2012, geothermal energy through 2013 and solar power through 2016. Hecimovich said that unless they are made unnecessary by a carbon tax, targeted tax incentives should be extended still further, ensuring that today’s investors know that the market they’re investing in will still exist tomorrow.
For a startup trying to cross the valley of death, incentives that foster a market are nice, but incentives that attract venture capital are even nicer. Targeted investment tax credits for green investments, Kauffman said, not only drive crucial capital to young companies, but have the added benefit of creating new stakeholders in the green economy. If the investor class becomes deeply concerned about the creation of a green economy, clean energy would be more likely to find the legendary leprechaun of bipartisan support.
4. Set clear standards
Carbon pricing and tax incentives attempt to entice consumers and investors to renewable energies. In practice, though, the carrot of incentive has been made possible by the stick of state mandates for renewable energy generation.
Panelists at both the summit and the forum said that Renewable Energy Portfolio Standards—binding targets for how much electricity should be generated from renewable sources—are a crucial way to send a message to the market that states are committed to renewable technologies. These standards put power utilities on notice that they are going to need to generate power in a new way; in turn, the utilities work to develop renewable energy plants—thus creating an industrial market for renewable technologies. Meanwhile, utilities use rebate programs to foster local consumer markets for the renewables they are developing. Portfolio standards are in place in 29 states, including Nevada; several panelists said they hoped Congress would pass a federal standard that would create a truly national market for clean energy.
5. Invest in the transmission grid
Even when clean-energy plants come online, they are relying on an antiquated and balkanized transmission system to carry the electrons to market. Without lines to send it eastward, Dakota wind energy tends to stay in the Dakotas. That’s why, as Podesta said, “The private sector needs to see a crucial public investment in transmission lines so we don’t have stranded renewables.” Public investment has always been essential to turning local power generation into regional and national power distribution. As Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission, pointed out to me at the UNLV Forum, the federally enabled growth of the nation’s rail system in the 1860s made it possible to get coal from one place to another. Federally built freeways, meanwhile, provide oil’s pathway from refineries to retailers across the nation. In the same spirit, Nevada is currently planning its ON Line transmission line to connect northern renewables—geothermal and windpower—with southern markets. And the line is part of the larger Southwest Intertie Project that will extend from southern Idaho to Boulder City.
6. Consume less
Amid all of the policy ideas exchanged at the week’s events—from Pickens’ eminently reasonable suggestion to put the nation’s fleet of 18-wheelers on a natural gas diet to environmental advocate Philippe Cousteau’s equally reasonable call for a renewed national commitment to research and education—the quiet underlying reality was that we need to control our consumption. “The cheapest of all energy,” said Podesta, “is the energy you save by not using it.” Here, too, government has a role: The Home Star program, which is currently stuck in Congress, would fund energy retrofits for low-income homes, saving millions of megawatts across the nation with simple commonsense solutions such as improved insulation, lighting and windows. Meanwhile, smart meters—such as the EcoConcierge systems at Pulte Homes’ Villa Trieste in Summerlin—allow residents to track their energy use in detail and cut back on unnecessary and expensive use that overwhelms the grid at peak hours. But for these systems to bring massive energy savings, they need to be more than a boutique item. They need to be part of the fabric of residential and business life. And that means that in the beginning, at least, governments will need to offer sustained incentives for people to buy them and for utilities to install them.
7. Find the will
The notion that public policy is crucial for the creation of new markets is politically uncomfortable in a climate where many Americans take the old Ronald Reagan maxim to heart with fundamentalist fervor: Government isn’t the cure; it’s the problem. Having been branded repeatedly in recent years as an irredeemable tax-and-spend government interventionist, Reid understandably took pains at the summit to stress the market’s central role in America’s clean-energy future.
“We need the political will,” he said. “We also need courageous investors.”
But investors aren’t in the courage business. They’re in the business of placing good bets. And, for better or worse, it’s up to our politicians to help ensure that clean energy is one of them.