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U.S. Elections: The Morning After

Americans woke up to a different political lanscape this morning. After just four years in the majority, the Democrats lost control of the House to Republicans and gave up a handful of seats in the Senate. Now the big question is: How does this impact renewable energy policy?

Republicans saw a net increase of 65 seats in the House and a gain of six seats in the Senate. While the GOP gained control of one house of Congress, it was two seats shy of winning the Senate.

Scott Sklar, president of the Stella Group and political commentator on this site, says the impact is still unclear.

"Party shifts in mid-term elections have been routine in the United States and this election is no exception," Sklar says. "The big concern will be whether the new Republican electees will lash out at pro-renewable energy policies due to the overt, strong support that President Obama has given on the national stage."

Both Republicans and Democrats have expressed sincere support for renewables. Democrats, however, have been much more aggressive in pushing for long-term renewable energy targets and a price on carbon. In case you missed it last month, our columnist Robert Lahey of Ardour Capital Investments outlined some of the programs with the most and least amount of exposure to the shifting political winds.

According to Lahey, programs with the most election exposure include:

  • Proposed cap and trade & Renewable Portfolio Standard

  • Proposed natural gas vehicle incentives

  • $5b of proposed clean energy Manufacturer’s Tax Credit (MTC)

  • $60b in DOE loan guarantee lending authority ($35b already rescinded)

  • Tax credits extension for biodesiel (expired in 2010), biomass (expired in 2010), and ethanol (expires in 2011)

  • Investment Tax Credit (ITC) cash grant program (expires in 2011) and the Production Tax Credit (PTC) (expires in 2013) which are critical for wind and geothermal.

Democrats may try to pass key tax credits and an extension of the Treasury grant program during a lame-duck session before the year closes. Renewable energy advocates are trying to find a legislative vehicle (i.e. a related bill) that may drive those extensions forward. It's very unlikely that a renewable energy standard will get passed before the end of the year. And as we've known for sometime, cap and trade is completely dead for the time being.

According to Lahey, programs with the least election exposure include:

  • 29 State Level RPSs

  • $25b of unspent DOE stimulus funding

  • Renewable Fuel Standard (RFS) biofuel mandates through 2022

  • ITC guaranteed at 30% through 2016 which is critical for solar and fuel cells

As has been the case in the last decade, state programs are driving much of the development in renewables. Given the potentially slow action on broad-based policies at the national level, it's likely that will continue. And that brings us to one of the leading states, California, which had two extremely important ballot initiatives related to clean energy up for vote.

The first, Proposition 23, was endorsed and funded by two Texas-based oil refiners, Valero Energy Corp. and Tesero Corp. Prop. 23 would have suspended California's 2006 historic carbon-reduction law until unemployment levels in the state, now at 12%, dropped below 5.5% for four consecutive quarters. Because enforcement of the state's low-carbon fuel standard and 33% renewable energy standard were also part of AB 32, clean energy supporters said that passage of the initiative would have effectively killed the industry. Well, the industry can rest easy this morning: Prop. 23 was defeated 60.4% to 39.6%.

However, that wasn't the only renewables-related ballot initiative.

Although California voters rejected Prop 23., they passed Proposition 26, which renewable energy industry advocates also say could be a blow for clean energy programs in the state. The initiative re-defines “fees” in California as “taxes,” which means that a 2/3 legislative majority must approve any changes to a fee structure.

So how does that impact the industry?

Vote Solar, a CA-headquartered solar advocacy organization explained in a recent story that in California, state and local governments rely on fees collected by “polluters” to fund environmental initiatives. For example, a fee imposed on an oil manufacturer may be used to fund education, inspection and regulation of oil recycling programs. The greenhouse gas law, AB 32, also relies on fees collected from companies that emit GHGs to fund implementation and enforcement efforts.

Before Prop. 26, new fee structures were passed by majority vote. Now a 2/3 majority will be needed. That means it will be harder to impose fees that fund environmental programs. And should a polluter fee not pass, funding for such programs will need to come out of an already over-stretched state budget and could end up being cut all together.

The picture is certainly mixed on the state and federal levels. But what's new in the U.S.? The industry has been able to steadily scale up and make dramatic cost reductions in spite of the up-and-down nature of policy. Although there will be much uncertainty moving into 2011, the pieces continue to fall in place, slowly but surely.

As always, we'll be here to report on it.

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