Looking at the Bigger Energy Subsidy Picture

By Bob Cleaves | August 23, 2011

The first week in August, the U.S. Energy Information Administration unveiled a long-awaited study, called “Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010.” The report promises to be controversial. Already, various renewable trade associations have charged that the report fails to accurately capture subsidies for the oil and gas sector, which will in turn claim that the total support for all renewables—estimated to be $28.5 billion since 2009—is not affordable in an age of fiscal austerity. We have a slightly different take.

A closer look at the report reveals the profound disparity among renewable technologies.

Let’s start at the 30,000-feet level. The U.S. Department of the Treasury’s 1603 program, enacted in 2009 as part of the Obama stimulus package, provides a cash payment in lieu of an investment tax credit (ITC) equal to 30 percent of the cost of a project. Since September 2009, treasury has paid out a total of $7.78 billion to 3,159 renewable projects. Of that total, $5.6 billion was spent on wind, and another approximately $1 billion on solar. Biomass, on the other hand, received approximately $115 million—or 1 percent of the 1603 dollars—funding only a handful of projects. Geothermal (at 1.7 percent), and hydropower (1.8 percent) didn’t fare much better. The authors overlooked waste to energy, but we suspect the numbers would be the same.

In other words, this means that 1 percent of the money was spent for a renewable energy that represents 50 percent of the nation’s renewable supply, while about 85 percent of this grant funding went to sources that account for only 10 percent of the nation’s renewable energy supply.

So what’s going on here? Do baseload sources of renewable energy have a future? After all, according to EIA, annual growth from 2000 to 2010 was downright anemic for some (geothermal grew by only 1.3 percent), while biomass actually lost ground (-0.7 percent) along with hydroelectric (-0.75 percent). Will the future of federal renewable energy tax benefits (assuming there is a future) be skewed to solar and wind (the latter growing 31.8 percent), which admittedly play an essential role, to the extent that they essentially edge out baseload sources of renewable energy?

The EIA study is the best evidence yet of what happens when Congress creates a tax code that results in an unlevel playing field across renewable technologies. How unlevel? For starters, biomass, hydro and waste-to-energy facilities are only allowed 50 percent of the value of the production tax credit (PTC) compared to other renewables, with absolutely no public policy reason. Second, the code favors technologies with more immediately achievable “placed in service” dates. Remember that in order to qualify for the PTC or ITC, a biomass facility must be placed in service by Dec. 31, 2013. Given that typical biomass plants take easily five years to develop and construct, there is no certainty that projects developed now could qualify for the benefit. As a result, the code favors projects with shorter development horizons. This explains in part why so few biomass projects are qualifying for federal benefits.

For starters, Congress needs to provide tax equity across all renewables by enacting H.R. 2286, the Renewable Energy Parity Act. Second, BPA joins other renewable associations in advocating for the extension of the 1603 program, but an extension alone will not correct the inequities of the code. Enactment of a longer placed-in-service date window is essential if biomass is to realize its full potential in this country.

Author: Bob Cleaves
President and CEO, Biomass Power Association