Policy matters: Renewable energy tax credits support private investment, the key to global leadership

By guest blogger Phyllis Cuttino, director of the Pew Climate and Energy Campaign

Last week, Congress took the opportunity to create jobs and to reinvigorate both our manufacturing base and seize new export markets by passing the extension of the Section 1603 Treasury Grant Program, which allows renewable energy developers to claim tax incentives directly. The extraordinary worldwide growth in clean energy investment over the past five years has been defined by a simple fact: Where supportive clean energy policies are adopted, investment follows. Time and again, it has been shown that nations with the strongest policy frameworks have attracted the most capital and enjoyed the associated economic benefits, including job creation. In fact, our new report, Global Clean Power: A $2.3 Trillion Opportunity, underscores the critical connection of government policy to private investment.

The report, with data compiled by Bloomberg New Energy Finance, looks at three policy scenarios that will influence clean energy investments over the next decade. In every G-20 country, those with strong clean energy policies, such as renewable energy standards, realize significant private investment in clean power technologies – wind, solar, biomass, small hydro, geothermal and marine.

The United States is among those countries with the most to gain from passing strong clean energy policies. For example, the United States has the potential to attract $342 billion in clean power project investments over the next 10 years under the Enhanced clean energy scenario (policies greater than the promises made in Copenhagen). That would be 40 percent ($97 billion) higher than investment under the Business-as-usual scenario (current policies). Only India and the United Kingdom have the potential to increase investments at a higher rate.

Global Clean Power documents how energy demand and strong clean energy policies will shift the center of gravity for clean energy investment from the West (Europe and the United States) to the East (led by China and India) over the next decade. The question is: Why would the United States choose to get left behind by not acting now to extend tax credits for the burgeoning clean energy sector?

The clean energy race is being led by China, according to our report [click on figure to enlarge].

In fact, China maintains its global leadership position and has the potential to attract cumulative clean energy asset investments of as much as $620 billion over the next 10 years. India is the emerging clean energy powerhouse and could realize a 763 percent increase in investment under the Enhanced clean energy policy scenario, representing the most significant growth rate among G-20 members. (See chart on how investment grows with stronger policy.)

Our findings are a wake-up call to U.S. policymakers. We are at a critical crossroads – lacking ambitious policies, the United States is likely to be become a technology taker, not a technology maker.

Without reliable, long-term and predictable tax incentives and/or ready access to low-cost capital, the United States and its clean energy industry will see its competitive position erode even further. Extending the Section 1603 tax credit program is a step in the right direction, but only the first of many steps required by policy makers.

Read the entire report, including other key findings, country profiles, interactive graphics and video at www.PewEnvironment.org/CleanEnergy.  The report is the source of the two charts in this post.

– Phyllis Cuttino

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