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Transforming Production Tax Credits

Three reasons to make them a permanent part of U.S. energy policy.

Fortnightly Magazine - July 2006

forces necessary to have a successful national policy.

Reindustrialization Through Renewable Energy

Any national energy policy will be both more effective and much more likely to receive broad support if it treats all regions and states fairly. One of the critiques leveled against past proposals to make a national commitment and provide federal supports to renewable development has been that only a handful of states with strong wind or other renewable resources would benefit. One of the best ways to balance a national program that supports project development is to broaden it and encourage the development of a manufacturing industry that complements the large-scale development of new renewable projects.

A series of recent analyses undertaken by the Renewable Energy Policy Project looked at the potential for U.S. industry to increasingly supply the component parts that make up wind turbines and other commercial renewable technologies. The results are stunning. More than 70,000 firms are active in these types of industries. A national commitment to develop renewable energy would stimulate the demand for all of these components.

The report also looked at which states would be the most likely to receive an economic stimulus as a result of a national program to develop renewable energy. The results were encouraging: 75 percent of the stimulus measured as the creation of new jobs would go precisely to those states that have suffered the greatest loss of manufacturing jobs over the past four years.

A balanced national commitment would offer a public return for carbon-free generation and also provide incentives for manufacturers to expand or add new lines in order to provide the components any major program would require. The Energy Policy Act of 2005 offers several examples that easily could be extended to manufacturing incentives. The U.S. Treasury could provide “full faith and credit” guarantees for loans used to add or expand manufacturing capability. Clean Energy Bonds also could be offered for manufacturing.

Forward March

What is required to move forward on this effort? As a nation, we must recognize that carbon-emissions stabilization is an important public goal or priority. Once that recognition is made, a clear, efficient blend of energy policies that coordinate state and local efforts and that allow for the most creative infusion of private initiatives can move forward. Simple reforms to make the PTC permanent and to include other financial incentives equivalent to the PTC can provide a keystone to a workable, believable carbon stabilization policy.

One final note. The Energy Policy Act of 2005 contains several novel financial supports for renewable and other advanced technologies that can provide dollar-for-dollar returns to these technologies equal to the PTC, but which have the potential to “cost” the U.S. Treasury much less in terms of either direct expenditures or lost tax revenues. One prime example involves extending “full faith and credit” guarantees to qualifying projects. The full faith and credit will benefit development by lowering the cost of project debt significantly. The “cost” to the Treasury, however, is determined by estimating the risk of project default: no risk of default, no cost.

Any state