U.S. energy legislation faces formidable opposition in 2011, but we still expect a debate. Clean energy is a high priority of the Obama Administration and offshore drilling has been in state of limbo since the Gulf oil spill. There is certainly an opportunity for legislation, but the weak economy and new Republican Congress complicate prospects considerably.

We look for the following topics to dominate the 2011 energy debate:

Environmental Protection Agency (EPA) regulations: The EPA’s plan to regulate greenhouse gas emissions in lieu of a cap and trade system would indirectly benefit cleantech. However, the Courts and Congress are presently questioning the Agency’s authority and funding. Even if those hurdles are cleared, we are still concerned that executing the regulations will be hindered by EPA’s culture and limited resources. 

Energy bill: Cap and trade and Renewable Energy Standard (RES) are dead; a Clean Energy Standard (CES) is potentially the new centerpiece. The CES is an RES with the additions of nuclear, natural gas, and coal with carbon sequestration. Additional components of an energy bill may include incentives for natural gas vehicles, nuclear energy loan guarantees, and offshore drilling regulations.

Deficit reductions: Republicans are planning budget cuts which challenge extensions of the upstream renewable electricity manufacturer’s tax credit (MTC), the downstream renewable electricity cash grant program expiring in 2012, and the wind Production Tax Credit (PTC) expiring in 2013. It may also challenge unspent stimulus funds in the Department of Energy (DOE) Loan Guarantee Program (LGP) which particularly benefits utility-scale solar.

Variables that will impact the debate include:

President Obama on nuclear and natural gas: The Administration compromised in March 2010 by offering offshore drilling incentives and nuclear loan guarantees in exchange for RES and cap and trade. However, embracing a CES with minimal climate change provisions would be a more radical policy shift. If this occurs, prospects improve for an energy bill and small cleantech provisions that can piggyback.

Courts and Congress on EPA regulations: A final court ruling may take years and come from the Supreme Court, but there will be various lower court rulings impacting the debate in the near-term. In Congress, the House Republicans will attempt to defund the EPA and Senators from coal states will move to strip the Agency’s authority. The proposals would face a veto threat, but still pressure the Administration to at least delay the regulations.

Crude Oil prices: Increasing gasoline prices pressure Congress to diversify our energy portfolio. In the summer of 2008, voters were more concerned with energy policy than the War in Iraq. If oil spikes again, all renewables would benefit from the attention, even though natural gas is the relevant commodity for electricity generation technologies like wind and solar. 

While scenarios exist for passing 2011 cleantech legislation, we are not particularly optimistic. Deals in the previous Congress were hindered by extreme partisanship and though the election shifted power, it did not replace any of the party leaders. Furthermore, we believe job creation and deficit reduction will dominate the 2011 agenda. 

Robert Lahey is the Senior Legislative Analyst at Ardour Capital Investments, LLC, and can be reached at rlahey@ardourcapital.com. Founded in 2002, Ardour Capital is the leading research and investment-banking firm exclusively focused on energy technology, alternative energy and power, and clean & renewable technologies. Ardour Capital publishes in-depth company coverage and industry specific research. Ardour Capital offers private and public companies a full range of corporate finance, investment banking and capital market services. Ardour Global Indexes is a family of pure play alternative energy indexes that is the primary measure of cleantech equity performance.