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Good Government Investments in Renewable Energy

Good Government Investments in Renewable Energy

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Richard W. Caperton looks at how the government currently invests in renewable energy and ways to make that spending more efficient and effective for a more competitive, healthy, and secure United States.
Richard W. Caperton looks at how the government currently invests in renewable energy and ways to make that spending more efficient and effective for a more competitive, healthy, and secure United States.

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Published by: Center for American Progress on Jan 10, 2012
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1Center or American Progress | Good Government Investments in Renewable Energy
Good Government Investmentsin Renewable Energy
Fair, Effective, and Efficient Tax Policy Is Keyfor Driving Renewable Energy Growth
Richard W. Caperton January 2012
Budge decis drove he conversaion in Washingon in 2011 wih he daily newsdominaed by governmen shudown hreas, he “super commitee,” coninuing reso-luions, and arcane budgeing pracices. Unorunaely, his le Americans convincedha governmen invesmens in he uure are o he able because o large ederal budge decis ha need o be reduced. Americans were misled. As he Cener or American Progresspoins ou , he UniedSaes can balance our budge, reduce our long-erm deb, and make key invesmens inour uure all a he same ime. CAP’s plan works oward a more vibran economy whereall Americans are beter o and clean energy is an inegral par o his uure. Bes o all,he invesmens ha governmen needs o make are relaively modes and can be paidor by ending waseul spending in he same energy secor.Tere is no doub ha Americans need clean energy because is vial o our naion’seconomic compeiiveness, securiy, and healh.Tere is also no doub ha governmen will play an imporan role in making heransiion o clean energy. Why? Because he ederal governmen always has been—and always will be—a player inenergy markes. Te ederal governmen has made invesmens in energy or more hana cenury, by graning access o resources on public lands, helping build railroads and waerways o ranspor uels, building dams o provide elecriciy, subsidizing exploraionand exracion o ossil uels, providing nancing o elecriy rural America, aking on risk in nuclear power, and conducing research and developmen in virually all energy sources.Tere’s no reason ha Washingon should sop making new invesmens.
2Center or American Progress | Good Government Investments in Renewable Energy
Considering he hisory, governmen invesmen has led o amazing developmens,including universal access o reliable and aordable elecriciy, lasing economic devel-opmen, and indusrial growh. Tis success sory alone could jusiy coninued govern-men engagemen o vibran energy markes. When we consider ha invesmens in clean energy are invesmens in America’s uure,i’s clear ha he smar choice is o make hese invesmens o mee he nex genera-ion o energy challenges and o produce a oundaion o aordable, reliable, and cleanenergy alernaives or uure waves o invesmen and opporuniy. A he same ime we can no longer aord indiscriminae or waseul subsidies. I is essenial ha govern-men’s invesmens in energy be air, eecive, and ecien.Tis issue brie examines how he governmen currenly invess in renewable energy, whenhose invesmens are eecive, and how hose invesmens should work in he uure.
Energy and the tax code
Te ederal governmen has a suie o ools a is disposal o make invesmens, includ-ing cash grans, regulaory incenives, ax expendiures, and nancing suppors. Whenproperly designed and argeed, each o hese ools plays an imporan role.In he energy secor mos governmen invesmen happens hrough he ax code.Indeed, or energy companies ha receive ederal suppor, he mos imporan day o he year is ax Day, when hey receive a large amoun o heir governmen benes.In ac,44 perceno energy spending in 2010 was hrough he ax sysem, wih heremainder hrough oher ools.Tere are boh good and bad reasons or his. Boh companies and he governmenhave an esablished sysem or paying and processing axes, so providing invesmenshrough he ax code provides or ecien delivery o incenives by apping exisinginrasrucure and rules. More cynically, however, ax expendiures are an expedienha may be a cross-purposes wih good governmen pracice because hey are heldo dieren budge sandards han direc spending. Tis means ha working hroughhe ax code is less ransparen and hereore ar easier o pass hrough Congress wihreduced budge scruiny.Tese issues are discussed in deail in he CAP repor Governmen Spending Undercover:Spending Programs Adminisered by he IRS” by Lily Bachelder and Eric oder.ax expendiures are governmen spending programs ha deliver subsidies hroughhe ax code via special ax credis, deducions, exclusions, exempions, and preeren-ial raes. While he acual implemenaion can be complicaed, ax expendiures are
3Center or American Progress | Good Government Investments in Renewable Energy
economically he same as direc spending boh or he governmen and or beneciaries. Wih direc spending, he governmen brings in ax money and hen spends i, while wih ax expendiures he governmen simply reduces he axes ha a company owes.Eiher way, he company has more money and he ederal governmen has less.
 Tax expenditures should be held accountable for achieving results
Te underlying reasons or so much energy spending being done hrough he ax codeare unlikely o change, a leas in he shor erm. Tereore is imporan ha energy ax expendiures work well. Inprevious CAP work we’ve called or regular reviews o all ax expendiures o ensure his spending is eecive, ecien, and necessary.Tere are some energy ax expendiures ha clearly do no mee his sandard. SimaGandhi and I wroe in deph abou his issue in“America’s Hidden Power Bill ,” where we described obscure ax credis or he oil-and-gas indusry ha have exised or morehan 80 years and have no demonsrable benes or Americans. Such ax breaks simply provide windall benes o hese maure indusries a axpayer expense. We also dis-cussed several ax credis or clean energy ha are much beter designed.Tis issue brie calls or Congress o ake acion on some o he mos imporan cleanenergy ax issues in oday’s policy and poliical debaes: he producion ax credi, heinvesmen ax credi, and he reasury Cash Gran Program. Each o hese can beexended in a way ha boh leads o powerul incenives or invesmen in our energy uure and represens good ax policy.Finally, i’s imporan o noe ha each o he hree primary issues is signican or adieren reason. Because renewable energy sources have dieren characerisics hey require dieren reamens wihin he ax code. Simply exending he producionax credi is no sucien. Neiher is exending he reasury Cash Gran Programnor improving he invesmen ax credi. Congress needs o do
o hese hings. I Congress only akes acion on one o hese, hey will in eec be “picking winners”across echnologies.Congress should insead ocus on a comprehensive invesmen package ha creaespahs or all echnologies so ha American businesses will inves in he echnologiesha make he mos sense or our counry.
 Three ways to invest efficiently and effectively
Forunaely, we already know some o he bes ways or he ederal governmen omake meaningul invesmens. Trough eecive and ecien use o he ax code, he

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