Friday, March 07, 2008

Renewable Energy Policy

Last week the U.S. House of Representatives passed legislation - HR 5351 - to extend the tax credit for production of electricity from renewable sources for another three years. The bill provides for extensions on other renewable energy tax credits as well, such as the tax credit for biodiesel, and creates new credits for plug-in hybrid motor vehicles and cellulosic alchohol fuel among others.

Even the eight years extension given to the energy tax credit for solar energy and fuel cell property is not much of an extension given that energy policy is really a matter for long-term planning and strategizing. If nothing else, politicians are tactical animals, mostly responding in the near-term to stimuli that will keep them in office another term.

Herein resides some of the difficulty for entrepreneurs and established companies alike. There is an interest among investors to finance renewable energy initiatives within the private sector. However, there is an element of the unknown in return calculations because public policy toward various technologies and solutions is highly unpredictable and short-term in duration. Even summer interns understand the haircut any investment gets for uncertainty.

The Senate still has to take action on the proposal and may even have its own legislation in the works. The various partisans are already facing off to debate the wisdom of providing tax incentives to alternative energy.

Some argue that if renewable energy is to be economically feasible, then it should stand on its own from the beginning and not have the support or protection of tax credits. Few have made this argument for oil and gas production, which continues to enjoy the economic benefits of substantial tax credits. The oil and gas industry can certainly not be characterized as a fledgling industry at this point!

The continuity of fiscal protections and advantages for oil and gas over several decades has been one of the factors that helped send capital to the sector. My argument is that for the renewable energy industry to survive, politicians need to adopt a longer-term view in their policy initiatives to give the sector the same appeal for investors today.

No comments: