Following the Democrats’ “shellacking” in the November midterm elections, the American conversation has now accelerated in its derision of government. After the Republicans used a belligerent cry of consumer cost escalation to defeat cap and trade — a market concept the GOP initially embraced over a carbon tax model — US energy policy remains antiquated, inefficient and prone to technical collapse.
And while the free market has pushed some promising capital flow to renewable energy sources like wind turbines, the future of clean energy in the US essentially hinges on two drivers: 1) Government policy; or 2) Another energy price shock.
We can call agree that the latter scenario is both unlikely in the short term (energy consumption is down almost 10% in the US since 2007) nor desirable.
So, I guess that brings us back to clean energy being a matter of the political economy. And a report in today’s New York Times (in cooperation with the Chicago News Cooperative) demonstrates just how material a role governments play in creating the right market incentives for renewable energy growth.
The state of Illinois has the seventh best wind power capacity according to the American Wind Energy Association. Being an agricultural intensive area, the abundant farmland offers a great deal of supply for wind farms. In addition, a state law has mandated that 18% of Illinois’s electricity be derived from wind power by 2025. These conditions have helped make Chicago America’s hub for wind power start ups, an economic bright spot for a state that trails only California in unemployment.
However, a state procurement policy that forces utilities like ComEd and Ameren to purchase wind power (often from Texas) on the spot market, as opposed to buying it a fixed price with a medium or long term contract, threatens the future of wind energy in the region. Firms with shovel-ready projects cannot receive financing, as banks know that the state law will prevent these wind power start ups from generating sufficient long term revenue.
The purpose of the law is to provide the lowest energy prices as possible to the consumer. Regardless of your political persuasion, most would agree this is a judicious political economy tool. The point is that with large scale infrastructure, government matters.
And if we’re ever going to modernize our grid, improve our energy security, reduce the risk to climate change and create new jobs, the market will need the government and some long term thinking.
Image Credit by Megan Morris via Flickr under a CC license