Energy Independence Gives Opening for Renewables: Viewthe Editors
(Corrects dollar amount of Solyndra loss to taxpayers in ninth paragraph. For more Bloomberg View, click on VIEW <GO>.)
Feb. 16 (Bloomberg) -- Ever since the 1973 Arab oil embargo prompted long lines at gas stations and helped tip the U.S. into recession, energy independence has been an elusive national goal. So it might surprise you to learn that the U.S. is now closer to achieving energy independence than at any time since the 1950s.
As Bloomberg News reports, the U.S. met about 81 percent of demand through domestic sources for the first 10 months of 2011. Oil production is at its highest level in eight years, and natural gas is so plentiful the price has plunged more than 80 percent since 2008.
Consuming less foreign oil means the nation isn’t as beholden to the Middle East, giving the U.S. a freer hand in its foreign affairs and defense policy. The bonus is that energy independence also creates jobs, increases wages and government revenue, and reduces the trade deficit. If this pace keeps up, the U.S. could cut oil imports by 4 million barrels a day by 2020, shaving $145 billion off the $513 billion U.S. trade deficit.
It’s a heady accomplishment, achieved through higher fuel-efficiency standards and a mix of Obama administration policies that encourage both oil and gas production and renewable fuel use.
But energy independence could also weaken the national resolve to embrace clean energy. Dependence on fossil fuels, even if produced domestically, risks squandering a decade of renewable-energy investments. It also means losing ground in the fight against global warming.
Lower natural gas prices and abundant supplies of coal make it difficult for solar and wind startups to compete on price. Clean-energy companies say they can go toe-to-toe in the marketplace, but only if fossil fuels reflect the environmental cost of carbon emissions. With the U.S. and other large economies preoccupied by economic recovery, putting a price on carbon pollution is probably years away.
Still, this is an opportune moment -- in the same way that fixing the roof is best done when the sun is shining -- to make sure renewable energy companies thrive. The Obama administration should, for example, continue to underwrite the development of solar, wind and nuclear energy with research grants and loan guarantees. We’re no fan of subsidies, and we aren’t comfortable with the idea of bureaucrats picking winners and losers. But there’s little doubt fledgling companies with smart ideas and limited access to capital need government help to propel their technology from concept to reality. Without it, they will surely disappear.
In particular, Congress should renew the tax benefit that provided cash grants to fund 30 percent of a solar, wind or other renewable project. The benefit expired at the end of last year, and lawmakers show no sign of heeding President Barack Obama’s call to renew it. That’s a shame. The Treasury Department program has provided $1.5 billion in grants to assist more than 22,000 solar projects, which have in turn leveraged federal money to attract more than $24 billion in private investment. Companies can still claim a tax credit, but many can’t take advantage of that because, without any profits, they pay no taxes. Without the federal funds, it is unlikely that most of the private money would have materialized.
Subsidies, of course, carry risk -- especially when new technology is involved. Some efforts, such as the loan guarantee given to Solyndra LLC, will fail. Solyndra was a public-relations disaster for Obama and a $527 million loss for taxpayers. But a recent audit of current Department of Energy loan guarantees found no evidence that Obama donors were influencing awards or other signs of crony capitalism. The review also concluded that the loan guarantees will probably show losses of about $3 billion, far less than the $10 billion Congress has set aside.
The audit, by former Merrill Lynch & Co. President Herbert M. Allison Jr., offers sound recommendations to reduce the chance of future defaults. Among them: naming a risk-management officer to oversee the loans; strengthening the U.S. financial position, possibly with equity stakes, if companies seek more favorable loan terms; and developing explicit performance standards for loans.
As we’ve said in the past, the U.S. should support research on clean energy and direct small amounts of money to early-stage researchers at labs and universities. Obama’s 2013 budget includes several promising initiatives, including $2.3 billion for renewable energy R&D, a 25 percent increase from 2012.
Being on the cusp of energy independence is truly an impressive feat, but the U.S. can’t afford to be complacent.
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