Friday, March 14, 2008

The Economics of Ecology: House Energy Bill Needs to Pass Senate

I was interviewing a major "green" West Coast developer this morning, and, as these things go, the conversation turned to economics.

The question I always pitch at anyone building green on any kind of scale is this: "What will it take to transform green building into widely accepted mainstream practice and how can it make housing more affordable?"

Over the years, builders, architects and developers have been pretty honest on the answer: "it's the economics."

This particular developer was taking a bold move to mandate that 20% of the new homes in his planned community needed to have solar electricity (PV) panels installed. The gross cost of these power producers is a about $24,000 per home. Subtracting state and federal rebates and the net cost is about $16,000. He's able to get a volume-purchasing discount from a major vendor, who always does the installation, so he's done everything he could at this point to make his homes make and conserve energy.

Here's the economics piece and it's a big one.

When Congress first started toying with tax incentives for alternative energy, it was a limited approach, mostly favoring things like ethanol (50-cent-a-gallon subsidy to producers), solar appliances ($2,000 federal tax credit) and sundry other items like energy-efficient appliances, windows, doors and insulation. This piecemeal legislation left out residential windpower and geothermal and is due to expire the end of this year. Without the subsidies, builders have no incentive to do any alternative energy, except where electricity is expensive and offset by state alt-e tax breaks, which tend to be most generous on the West Coast. Why offer a solar appliance when you could upgrade your kitchen or bath? Consumer economics is a fickle beast. We choose comfort and convenience over lowering operating costs 99% of the time. Until we see obnoxiously high energy bills (they are coming), we opt for granite countertops as our environmental plum.

It would seem that Congress was really on board with the alt-e subsidy program after oil prices hit $110 a barrel. Although there's a bubble in that market as traders flee dollar-denominated investments to oil and gold, it's clear that energy demand is not going away and Congress is doing a miserable job of developing alternative sources.

Enter the House of Representative's "Renewable Energy and Energy Conservation Tax Act of 2008," which was passed last month under the capable leadership of House Speaker Nancy Pelosi. It's a good bill that deserves to be passed by the recalcitrant Senate. Here are some of the highlights:

* Bumping up the residential credit for solar appliances to $4,000 from $2,000. A great idea. This credit would also apply to geothermal and wind power installed in homes.

* Extension of the 30-percent investment tax credit for fuel cell and solar research through 2016. Do we need to give tax break for R&D on the cleanest forms of energy? You bet.

* A production tax credit for alternative refueling stations and cellulosic ethanol. I was considering buying a Honda Civic that ran on natural gas, the cleanest car on the road. But there are no ng filling stations in Illinois. It's only available in California.

* Plug-in Hybrid Car Credit of $4,000. This is a break for those who buy a car that you can recharge at home. Although these vehicles are not available yet through mass-produced automakers, they will be soon. They can get up to 100 miles a gallon.

* Eliminating the SUV tax break and various oil industry subsidies. The US tax code was subsidizing the purchase of the dirtiest, most fuel-guzzling vehicles on the road in addition to an ungodly wealthy industry fueling them.

* Breaks for energy-efficient appliances, buildings, smart electric meters and conservation bonds.

I don't think this version will pass in its entirety. The Senate has logjammed this legislation in the past because it seeks to take away huge subsidies for the petroleum industry. While I don't think oil/gas producers need any subsidy whatsoever -- look at the price of their raw product -- it's always a deal breaker with the Senate GOP.

It's also disappointing that neither the House nor Senate has approved a minimum portfolio standard for alt-e. For example, one proposal would have the country producing 20% of its power from alt-e in 20 years. This is ambitious, but necessary. Until Congress opposes the open-ended use of carbon-based fuels, we're going to be in trouble.

What can you do? Call, write or email your Senator and ask him/her to endorse the House energy bill. We needed this legislation 30 years ago. They've had plenty of time to consider why it's vital.

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