Greening Our Economy

Jonathan Ortmans, President, Public Forum Institute

Making what is urgently needed consistent with what is needed for the long-term is not a bad idea. The current House bill on the economic stimulus nicely blends the short- and long-term perspectives, particularly in the way it addresses renewable energy. The challenge now is to figure out how to achieve progress in developing and commercializing green technologies without turning the government into an obstacle to the entrepreneurial innovation needed to end the climate change and economic crises.

The unfortunate reality is that the clean energy industry requires a government push to leverage the risk-taking behavior of entrepreneurs and their financiers. Months of plunging oil and coal prices and a deepening financial crisis have dried up financing for many renewable energy projects. Because climate change and energy security are national priorities, we can’t risk having the clean energy sector in a freeze any longer. Experts in the renewable energy business say that most projects take three to five years to develop even when fully funded.

The proposed stimulus package includes a $20 billion investment in tax incentives for green energy investors, temporary loan guarantees for up to $80 billion for renewable energy power generation and electric transmission projects that begin in the next two years, and $11 billion to create smarter electrical grids. The tax breaks include an extension of the production tax credit for three years, and the option for businesses that place new renewable energy facilities in service during 2009 and 2010 to claim either a 30 percent investment tax credit instead of the production tax credit, or apply for a grant of up to 30 percent of the cost of building a new renewable energy facility from DOE. Yet another tax incentive relates to R&D, which is at the base of all high-tech innovation: an enhanced R&D tax credit for research in fields such as fuel cells, renewable energy, efficient electricity transmission, and carbon capture and sequestration. Of course all the activities being incentivized can not only bring us green technologies and energy, but also generate jobs (for an estimate of this impact, see ITIF’s new report).

The provisions in the stimulus package for clean energy could unleash a good dose of entrepreneurship and innovation by speeding up investment in clean energy projects and engaging our best scientists, engineers and entrepreneurs in the economic recovery. In addition, President Obama announced in his first weekly radio address that he would like to start a clean energy finance initiative, which will use loan guarantees and other financial support to leverage $100 billion in private sector investments in clean energy projects over the next three years.

While we can see with optimism that entrepreneurship in the green energy sector might feel revitalized with these incentives, we must be wary that government intervention could lead to undesirable outcomes. The devil is in the details that will come. The risk is that what might be needed to revive the clean energy market today could prove harmful to the clean energy sector’s competitiveness tomorrow, by allowing the government to pick and protect winners and thereby deprive society from the very forces that drive innovation. We should applaud efforts to jumpstart investment in clean energy, but once this is achieved, we must always look to entrepreneurs to lead the way to a greener, healthier, and more productive future.

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