Posted by: Andrew Hoffman on November 18
We place too much faith in pricing as a singular mechanism for solving environmental problems in this country. The most vivid example is the call to create a price for carbon as the solution to the climate change problem. As the logic goes; if we set a price for carbon high enough, innovators will create new gadgets that emit fewer greenhouse gases, investors will invest in them, companies will adopt them and consumers will buy them.
But, not so fast. We are not like some sort of mice chasing a piece of cheese whenever it is placed in front of us. Unlike mice, we are not so singular in focus. We actually care who is placing the cheese and we may even ignore the cheese if it is not placed in the right way.
In short, pricing is never contextually or politically inert. Contrary to what many would like to think is a quick fix, a price for carbon is but one tool that must be accompanied by others to make sure that markets respond effectively and efficiently. Put too much faith in pricing as the only answer and success will be either elusive or found through sheer luck.
Consider the gasoline price spike of two summers ago. The market responded efficiently with the sales of gas-guzzlers dropping like a stone and consumers flocking to their fuel efficient neighbor. Pricing worked! But consider an alternative scenario. Imagine we faced the same price spike, but instead of its cause being the invisible hand of the market it was the very visible hand of a government gas tax.
Would consumers have been so pliable? Would auto suppliers have been so flummoxed? No, unlike our friends in Europe who accept government inflated gasoline prices, there would have been widespread revolt with defiant customers and auto execs remaining intractable.
Consider another example. In 2002, the Irish government instituted a 15 cent fee (aka tax) on plastic grocery bags. Within one year, plastic grocery bag use dropped by 94 percent. Score one for pricing-induced behavior change! Well not entirely. Unlike the experience in many US cities that are trying to institute similar initiatives (for example, San Francisco), the context in Ireland was ripe for the "plastax."
The reasons, in no particular order, include: there are no plastic bag manufacturers in Ireland to mount an organized opposition; there is no problem of leakage from neighboring countries or states that did not have a similar tax; almost all markets are parts of chains that are highly computerized with cash registers that already collect a national sales tax, so adding the bag tax involved a minimum of reprogramming; the country has a young, flexible population that has proved to be a good testing ground for innovation, from cell-phone services to nonsmoking laws.
In fact, the country was primed for change having just shifted from the Pound (or Punt) to the Euro; and people generally didn't mind paying the tax as the litter from the bags was seen as a common nuisance. All of this led up to the development of a norm that it was socially unacceptable to be seen carrying a plastic bag. In fact, it was downright rude, with violators being treated much in the same way as someone who did not curb their dog.
What does all this have to do with carbon pricing? Plenty.
Continue reading "The Limits of Carbon Pricing: Can High Prices Alone Cut Emissions?"
Posted by: Yoni Cohen on November 17
Eight long years after Energy Management Inc. (EMI) began the permitting process for Cape Wind, its proposed billion-dollar wind farm offshore from Cape Cod, the Massachusetts project may be in sight of final approval. In early November, United States Interior Secretary Ken Salazar said that he hoped his agency would make a final decision on Cape Wind by the end of the year. Then, Massachusetts Congressman Ed Markey urged Salazar to further expedite the review process and approve the construction of 130 wind turbines in Nantucket Sound before next month’s international climate change conference in Copenhagen, Denmark.
But as has been the norm for Cape Wind, two steps forward, one step back. In short order, the Massachusetts Historical Society agreed with local Native American tribes that the Nantucket Sound is eligible to be listed as traditional cultural property on the National Register of Historic Places. Such a listing, if affirmed by the National Parks Service, would significantly delay the project by imposing additional permitting requirements. At Massachusetts’ Fifth (Annual) Conference on Clean Energy on Nov. 12, Mark Rodgers, Communications Director for Cape Wind, expressed optimism that the wind project would still be approved before the end of the year. “We think the National Park Service is going to make an expeditious decision in just a few weeks,” said Rodgers. “Never before has open ocean been declared traditional cultural property.” If the Department of Interior and the National Park Service rule in EMI’s favor, Rodgers said Cape Wind could begin construction by the end of next year and have the wind farm up and running by the end of 2012.
Guest blogger Yoni Cohen is focusing on green business as a joint-degree student at the Yale Law School and the Wharton School of the University of Pennsylvania.
Posted by: John Carey on November 16
Health care and solar power seem to be worlds apart. Yet the massive health care bill could cast a pall on renewable energy.
How? The link is an obscure tax provision in the House version of the health care bill, explains tax attorney Jerome Breed, a partner at Bryan Cave LLP. The provision actually has nothing to do with health care either—its purpose is to raise revenue.
The provision centers around the idea of “economic substance.” It puts into legislation the idea that a transaction (such as putting solar panels on a house or a buying health care policy) has to have some economic substance (i.e. an economic return) to be eligible for a tax credit. In the case of solar panels, the federal government offers a tax credit of 30% of the cost of systems consumers install. But what if the return to the consumer is mostly in the tax credit—so that they really don’t get any other economic benefit? “It’s not clear if, when you take away the effect of the credit, there has been a meaningful change in their economic position,” explains Breed. So if an economic substance requirement passed, the consumer would no longer be eligible for the tax credit.
Renwables power isn’t the only industry that could get hit by this provision. The economic substance doctrine would also make it harder to use the low income housing tax credit, the credit for rehabbing historical buildings, and others, says Breed.
Why is the provision in the bill at all? It’s a revenue raiser. The House expects to get about $5.4 billion, mostly from penalties levied from transactions that don’t meet the economic substance test. The provision is also supposed to discourage people from entering into transactions that don’t result in economic substance, thus preventing tax money for being used for dubious purposes.
Clearly, some sort of provision disallowing dubious transactions is needed. Otherwise, “there could be fraud,” says Breed. “Someone could claim tax credit for building 1000 solar panels in the desert that don’t exist, or could claim that the panels cost $1 million when they only cost $100,000. So it’s appropriate to protect against that type of transaction.”
The worry is, though, that a blanket prohibition against transactions without economic substance will also knock out many legitimate transactions. Tax lawyers have been meeting with the Joint Committee on Taxation to push for a compromise position, so far without success.
Posted by: Heather Green on November 13
Enviro groups aren't losing the chance to keep the pressure on Obama during his trip to China, where he's vowed to tackle climate change. And they're hitting on two fundamental problems: Water and coal.
The Environmental Defense Fund and the Asia Society are running a full-page ad in the NYTimes tomorrow using the dramatic disappearance of Himalayan glaciars to call on Obama and Hu Jintao to get serious on addressing climate change. The water that flows from the Tibetan Plateau is used by hundreds of millions of people. The Asia Society, showcasing the work of mountaineer and photographer David Breashears, who, during the past year, began doing expeditions to take photos that could be compared with photos from the early part of the century to show just how dramatic the melt has become.
Last week, three organizations: the Asia Society, the Center for American Progress and the Natural Resources Defense Council, released two reports calling on the government to put more funding into carbon capture and sequestration innovation. China, now the largest emitter of greenhouse gases, is furiously building new coal plants and the U.S. depends on coal for a little over 50% of its energy.
Posted by: Yoni Cohen on November 12
There is no escaping China’s growing impact on clean technology investing. Even at Boston Cleantech Venture Day, held on Nov. 10 and focused on helping European come to the U.S. to raise capital and to penetrate American markets, China’s growing role was front and center.
“We’ve got to keep our eyes on China,” said Alexander “Hap” Ellis of Rockport Capital Partners, five of whose portfolio companies have Chinese manufacturing facilities. “China is becoming a leader in the deployment of clean technology and … will be superb in manufacturing and in stimulating demand.”
“Ten years fast forward and this is an Asian game,” added Jörg Sperling of WHEB Ventures. “The days of billion dollar IPOs of European solar companies are gone.”
No kidding. Of the 16 European firms that pitched investors at the venture event, not a one was a solar startup. “Two years ago, it would be half solar companies” at a European cleantech venture day, said Howard Berke, a co-founder of thin-film solar company Konarka Technologies and a senior advisor to Good Energies, a renewable energy investment firm. “Solar is overbuilt, with too many non-differentiated products and names that have no brand recognition. Strong players with competitive technologies and scale of manufacturing will survive, but the solar sector has decreased significantly in terms of investment.”
In solar’s place, other technologies caught venture capitalists’ eyes. Sweden’s Chemrec generated the most interest in the event’s informal investor poll. The company’s technology converts paper mills’ waste byproduct into biofuels, biochemicals or power. Chemrec’s solution is already operating in both Swedish and American plants.
France’s Watteco has also made significant progress. A system on chip manufacturer, Watteco developed a smart-grid device to help home owners measure and manage their energy use. The firm has partnered with Cisco and negotiated a large deployment in China.
What about younger European firms? Given capital constraints and “competition coming from every province in China, I would encourage my fellow energy entrepreneurs to think of strategic corporate partnering earlier in the build out of your companies. That would also solve the problem of access to the US market and China,” said Berke.
Guest blogger Yoni Cohen is focusing on green business as a joint-degree student at the Yale Law School and the Wharton School of the University of Pennsylvania.
