Renewing the Fight for Renewables

In 2006, renewables' share of energy in the United States stood at 7 percent (including hydropower) scarcely better than when Carter spoke. Clearly, later presidents and congresses haven't taken renewable energy very seriously, even through the stronger evidence that carbon emissions are changing our climate makes his goal even more important today.

What policy levers should we adopt to dramatically increase the national share for renewable energy? There are four major options, each with its own pros and cons — tax incentives for renewables, investments in energy research and development, renewable portfolio standards, and taxes on fossil fuels. Which makes the most sense?

From my perch sympathetically observing renewables industries, too much emphasis has been placed on tax incentives, even though they were a vital component of the Carter plan. Current practice establishes these incentives for short periods of time. As a result, we reward what economists call "free riders" (people who would have been early adopters of renewables anyway). The obvious solution, if we really want to increase the market share of renewables, is to lock in tax incentives in perpetuity or at least for a very long time.

Unfortunately, the congressional budget system makes long-term incentives almost impossible. Under current rules, any loss of revenue from tax incentives must be offset with tax increases or cuts in expenditures. If tax incentives only apply to the early years of a nascent industry, the need for offsets is minimal. If the incentives are long-term and renewables industries achieve rapid growth, the offsets issue creates an almost insurmountable political hurdle. Tax incentives are easy if renewables industries fail, very difficult if they succeed.

The lobbyists for renewables have expended too much of their political capital on tax incentives, taking on the Sisyphean task of overcoming the idiosyncrasies of congressional budgeting.

The current support for energy research (our second option) is pitiful. It is not widely recognized that, controlled for inflation, expenditures for energy research were higher under President Nixon than under presidents from Ronald Reagan to George W. Bush. A major tragedy was the termination in 1998 of support for the algae fuels program, which I argue in my book is the most strategically important area of energy research. Clearly, we need to do better. But we also have to acknowledge that there are many technologies that are ready to go that are not penetrating the market.

Most of the success of renewables in recent years results from renewable portfolio standards adopted by many states. Last year, a national portfolio standard just missed being included Energy Independence and Security Act of 2007. Because of numerous loopholes, the proposal failed to come close to its advertised mandate of 15 percent of electric generation. Still, the new congress should pass it (or a tougher version) promptly. Analysis by the Energy Information Administration concludes that the standards raise the cost of electricity by only a small amount, and standards make a difference.

The biggest problem for renewables is the current lack of any penalty for the emission of carbon dioxide, almost three decades after the National Academy of Sciences laid out the problem of climate change. This is where carbon taxes, or their functional equivalent carbon caps, come into play.

Carbon taxes or caps will need to be permanent and ratcheted up over time. In other words, they create an ideal environment of investments in alternative energy. This is, admittedly, a tough political challenge. However, some of the policies that slow global climate change also reduce dependence on Persian Gulf oil. Now is the ideal time to time galvanize public opinion behind tough measures.

The political agenda for renewables industries should start with a call for a national renewable portfolio standard for electricity to be passed in the first 60 days of next year's congress. Then, attention should shift to passage of stiff carbon taxes or caps that begin to impact the market almost immediately. After almost 30 years of tepid federal support for renewable energy, the time has come to act boldly.

Jay Hakes headed the Energy Information Administration from 1993 to 2000 and has just published A Declaration of Energy Independence: How Freedom from Foreign Oil Can Improve National Security, the Economy, and the Environment (John Wiley & Sons).