Strong energy policy should follow the market

For decades, nearly all energy production in the United States has been dominated by the fossil fuel industry. As oil traditionally drove the rise and fall of America’s GDP, legislators reacted to demand by implementing supportive tax policies for fossil technologies, sending over $7 billion in subsidies their way every year. But the relationship between energy and America’s marketplace is changing.

Most recently, a new report from the Department of Energy (DOE) announced that wind power alone could supply 35 percent of U.S. electricity by 2050. Like others, that DOE projection is based on a growing demand for renewable power—that is, if the current demand is given the opportunity to play out.

{mosads}A common argument holds that strong public policy should follow the marketplace. We should stick to this adage when it comes to energy policy. In the energy space, tax policy, such as the Production Tax Credit (PTC), or its counterpart, the Investment Tax Credit (ITC), are merely reactions to demand for renewable energy. We have similar tax credits for a wide range of industries.

And it’s important to remember that the PTC and ITC shouldn’t be accredited with all of renewable energy’s success. It’d be equally absurd to ascribe the ubiquity of fossil fuels to government subsidies. Rather, these policies can evolve to follow and support the rise of a profitable private sector. Renewable energy’s success is derivative of free market interests, such as private sector innovation and growing demand for diversified energy resources. For example, advancements in technology have allowed the cost for producing wind energy to drop by over 58% in the last five years, and solar by 64%. As costs continue to fall, an increasing number of investors are being drawn to the industry. Fair, long-term policies will help this trend.

Tax credits are simply mechanisms to help motivate investment of private capital. And often, companies are waiting for the right signals to invest in markets where demand already exists. Taking a quick scroll through the weekly headlines reminds us that the demand for investing in renewables today is strong – and only getting stronger. Google, Walmart, GM, Lockheed Martin and Amazon all have recently shifted millions in private funding into the clean energy sector. Have no doubt that these moves are motivated by profits, and not philanthropy. Whether Google is powering its California headquarters or GM is building the latest in American Muscle, consistent public policy is helping these mega-firms do what they do best: increase revenue. That’s why when Ohio froze a portion of its state renewable energy policy last June, it was businesses — major investors like Whirlpool, Honda and Honeywell – that voiced their disdain for the freeze. How can they be expected to attract private investment without long-term policy certainty?

As if to make the market’s growing desire for more renewable energy abundantly clear, even financial giants like Citigroup have ran the numbers and are looking to finance wind and solar projects to produce long-term dividends. When it’s all tallied up, over $300 billion was invested in the U.S. renewable energy sector in last 10 years alone.

When businesses are able to invest in high-growth markets, it almost always means job creation, too. One of the most overlooked aspects of policies like the PTC and ITC, is that they spur investment and job creation in places that need it most; locales like the Rust Belt and our Great Plains benefit greatly for instance. Before renewable energy tax policy was passed, a negligible number of Americans worked in the renewable industry. But since their passage the number of American workers in the clean power sector has swelled to well over half a million.

Thanks to business-friendly policies, America’s fossil fuel monopoly is transitioning to a more free energy market. Instead of reiterating a federal tax code that picks fossil fuels to win, policies like the PTC and ITC are helping renewable energy sources compete on a more level playing field. As testament, America now produces more wind energy than any other country in the world, and renewables in general now bring electricity to over 29 million households.

According to the Congressional Budget Office, only four major energy tax preferences are permanent: three are for fossil fuels and one is for nuclear energy. That’s why it’s a discredit to hundreds of thousands of American workers, a growing industry and our free-market ideals to claim business-minded tax credits are ‘crony capitalism.’  As evidence continues to prove, our marketplace increasingly demands renewable energy, and the economy is unmistakably better off because of these policies. After all, shouldn’t good public policy follow the market?

Hewett is senior policy associate at the American Council On Renewable Energy (ACORE).