Carrot & Stick Policy is Driving Clean Energy Development

One of the many under-appreciated bits of green legislation that Democrats snuck into the American Recovery and Reinvestment Act (ARRA) was that electric utilities (as well as businesses and homeowners) could also get a 30% tax credit if they invest in renewable energy.

This electric utility eligibility for green power incentives could drive renewable energy in the US. Homeowners and businesses might merely like to add renewable energy – but in twenty four states now utilities must buy more renewable energy and are penalized if they don’t.

That is the “stick” behind the electricity suppliers (in half the US) in the state Renewable Energy Standards (RES). The tax credit now provides the “carrot”.

Image: First Solar Blyth_Solar2

Utility Solar being completed in Blyth California, last month

Over half the electricity used in the US. is made by Electric utilities in twenty four states that passed Renewable Energy Standards. More comprehensive climate and energy legislation that would provide both a carrot and a stick for the whole US is stalled at the federal level. Yet utilities still must comply with their state legislation.

US climate policy has long been paralyzed by Republican resistance to renewable energy legislation in the Senate, long before the media noticed the recent filibuster record. The wealth of green investment in the American Recovery and Reinvestment Act passed only by narrowly overcoming the now inevitable Republican filibuster because two Republicans didn’t vote, and two others; Collins and Snowe supported renewable energy, as they always have. The 30% renewable energy tax credit for utilities just squeaked past the cloture (vote to take a vote) by four Republicans not voting against it. For most bills, we are stuck on a Federal level.

But, at the state level, legislation is already beginning to limit the amount of pollution that utilities emit with penalties for providers that do not meet their obligation to generate cleaner energy. Add the “carrot” of the 30% Federal tax credit, and you have the carrot and the stick combination that gives clean, renewable energy an advantage over older, dirtier sources of energy.

This carrot & stick legislative combo is the same mechanism that is in the climate bill that passed the House, and is now out of Boxer’s Senate Committee as CEJAPA. The cap and trade element of the bill provides both carrot and stick in one piece of legislation: a cap or limit on pollution, and the means to stop it with a market that funds renewable energy with the auction proceeds (and fines for polluting). What we have now is the gerry-rigged version, combining a requirement for renewable energy and the tax credit to make it easier to buy.

Two examples of carrot & stick action arose in California. California’s PG&E took advantage of the new 30% federal tax credit “carrot” from The Recovery Act to buy a 246 MW wind farm a few months ago.

And under the same pressure, Southern California Edison did the same, with an investment into what will be 500 MW of distributed solar. The utility is in the process of building California’s first distributed solar power station by splitting up the 500 MW in 2 MW increments across the big box commercial rooftops of LA.

Both utilities are up against the 20% by 2010 deadline “stick” of the California Renewable Energy Standard. The tax credit works to help investment in renewable energy, by the very electric utilities that supply most of our greenhouse gases.

But, whereas US tax payers, who simply use electricity, pay for tax credits; power companies that actually have a real choice about how to make our electricity, (constrained in part by RES rules) would supply the funds for clean energy under cap and trade. Because the cap creates fines, and the trade creates auction fees.

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