Sunday, November 7, 2010

Why the US Chamber of Commerce (Should) Support Clean Tech

Inconsistent tax policies are bad for business growth. This is a regular contention, explaining frustration when state governments provide tax breaks one year and revoke them the next. An uncertain business climate isn't good for encouraging investment. The transitive connection is that any economic uncertainty hampers business growth, ranging from serious debates over minimum wage increases to energy costs.

This creates a fascinating argument for increasing renewable energy development in the utility sector. According to the NY Times, wind energy development this year has dropped 72% from 2009. Renewable energy costs continue to drop, but the decrease in demand for fossil fuels during the recession has caused coal, oil, and gas prices to drop faster. However, once the economy begins growing again, we expect fossil fuel prices to reverse trend and escalate.

Reliance on natural gas and coal will always portend varying energy price inputs. This is particularly true for natural gas - coal is a more stable commodity. Therefore, coal would theoretically produce a better business climate. Yet renewable energy options provide even greater stability (wind turbines always cost the same amount to spin).

Following this logic, clean energy should enhance GDP growth, ceteris paribus. We can accept this if renewable energy costs are, on average, the same as that from coal or gas over time, because they provide more consistency. There should also be a comparative advantage if wind energy is slightly more expensive than the average cost of fossil fuel energy, because it's still providing that consistent climate that business investors love. The question is, how much more expensive before this is no longer the case? 3¢ per kWh? 1¢? So low that, although existent, it is negligible for all but the most energy intensive industries?

We know that fossil fuel scarcity will continue pushing coal and gas prices up over time. We also know that technological breakthroughs will continue to bend the cost curve of clean tech development down. So as clean and dirty options become increasingly cost competitive, the attractiveness of providing consistent input prices should push the case for wind, solar, and other options over the top for the business community. The caveat here is the necessity of foresight. Wind power is still more expensive to development today. The question is whether this justifies not planning for tomorrow.

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