Five Renewable Energy Policy Proverbs

The renewables industry has seen some impressive policy changes: 14 states have renewable portfolio standards (RPSs), 14 states have system benefit charges that support renewables and the production tax credit (PTC) has contributed to the over 6.3 GW of wind now installed in the U.S. But overall, the news is not great. The PTC extension is stalled in Congress, the proposed national RPS has received little attention, and some state benefit charges have been raided to pay back state budget deficits.

July 19, 2004 – RE Insider – The renewables industry would be more successful – at understanding policy, and at influencing it as well – if it better understood how policy is made. To that end, I propose five policy truisms. 1. Policy can best be understood in terms of winners and losers. Any policy change — whether at the state or national level, whether about energy or defense or anything else — means that some will gain and some will lose. A renewable portfolio standard (RPS) is, in general, a gain for renewables and a loss for whatever capacity would have been built without the RPS (typically fossil fuel). Another way to say this is that energy policies are neither ‘good’ or ‘bad’ in general — only in particular. The Price-Anderson Act (which limits nuclear power plant liability) may be good for the nuclear industry, but it certainly doesn’t help the renewables industry. An energy policy may be “good” or “bad” for a particularly industry or stakeholder, but it’s very rare for an energy policy to be “good” or “bad” overall. There are two implications of this. First, if someone says a policy is good or bad, they usually mean good or bad for them. So when you hear someone evaluating a policy, keep in mind who they are and what they want from the policy. Second, policy positions are a function of the amount of perceived gain or loss. The wind industry, for example, has much to gain from a PTC extension, so it is doing its best to try to get it passed. In contrast, the PTC extension has very little direct opposition in Congress. Why? Because the cost of the PTC is diffuse, long-term, poorly defined and in the future (in the form of increasing the deficit). And the future has no Congressional Representative. 2. Content and Process: both are necessary So the PTC has enthusiastic support and little opposition. Why then hasn’t it passed? There are two sides of legislation: content and process. Both are critical. Content is what the legislation actually says — the proposed policy itself. Process is the tortuous path the legislation must follow to become law. And unfortunately good content isn’t enough. Getting legislation passed requires a lot of effort to get it through the process as well. In the case of the PTC, the content isn’t a problem, but the process is. Last year, the PTC’s fate was tied to other energy legislation — including a number of huge subsidies for various energy supplies. These subsidies proved controversial, so the entire energy bill — including the PTC — was voted down. 3. It’s all in the details. It’s tempting to make broad generalizations about energy policy — such as “subsidies are bad” or “RPSs get results” — but the reality is more complicated than that. For example: Texas’ RPS was a driving force behind the 1.3 GW of wind now installed. But Maine’s 1999 RPS has driven no new renewables installations. Why is that? Because Maine set the RPS goal below its actual renewable capacity. The lesson here is that an RPS can be influential, but it can also be irrelevant. The Netherlands has an astoundingly successful green pricing program — with over one-third of the Dutch population voluntarily signing up for renewable electricity. The United Kingdom’s green pricing programs, in contrast, is at less than 0.1% market penetration. There are many reasons for this vast difference (one being that green electricity in the Netherlands is exempt from the sizable energy tax), but the overall lesson is clear: green pricing can be phenomenally successful or a dismal failure. 4. Policy goals vary widely. This is a fundamental difference between the public sector (policy) and the private sector (business). Most businesses have a clear and well-defined goal: to make money. There will of course be differences of opinion on how to best do this (offer new products or services? raise prices? change marketing strategies?), but the overall goal is clear, simple, and shared. Policy goals unfortunately lack this clarity. In the case of energy, there are many possible goals, including: – Maintaining dependable supply – Decreasing environmental impacts – Keeping energy prices low – Increasing employment and economic vitality And each goal has a constituency. Large energy users, for example, will often be most concerned with price and dependability, while the environmental community will often focus on CO2 and other pollutants. Politicians are left with the difficult job of trying to satisfy diverse constituencies with different goals. Disagreements over policy are often fundamentally disagreements over goals. Arguments in favor of opening up new areas for oil and gas drilling, for example, are driven in part by dependability and price goals, while arguments against stem from environmental goals. It’s sometimes possible, therefore, to save time and effort by shifting the discussion from specific policy options to policy goals, as that’s the root of the disagreement. And it’s often helpful to recognize that others don’t share your goals. The renewables community, for example, often views policy as a tool to implement their goal of getting the most amount of renewables in place, in the least amount of time. But of course others value other goals, and will view policy differently. 5. Everyone’s an advocate – and that includes you. Too many policy discussions start with the view that there’s a right and a wrong. Keep in mind that everyone is an advocate. Everyone wants something from policy: support for their favorite technology, pursuit of their favored goal, or business for their company. There’s nothing wrong with being an advocate — it’s all part of the democratic process — but it is helpful to recognize that all interests are “special” — including yours. About the author… Paul Komor teaches at the University of Colorado, Boulder. Prior to joining the CU faculty, Paul worked for the U.S. Congress’ Office of Technology Assessment (OTA), assessing and drafting energy legislation. Paul has a B.S. from Cornell University and a M.S. and Ph.D. in Engineering from Stanford University. His latest book, Renewable Energy Policy, was just published by the Diebold Foundation. Check it out at the following link:
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