OP-ED: Green Security

The debate on climate change continues, and the yet the U.S. response has been stuck in a political debate between the Democratic and Republican parties. The prospect for meaningful legislation for cap-and-trade or a national renewable energy standard (RES) seems beyond reach at least until after the 2012 presidential election.

As the election looms closer, policy makers will again look to engage in a social policy that wins votes, while politics as usual forestall implementation of a meaningful environmental and energy policy. Current tax based policies are set to expire in 2011 and it’s not clear whether they will be extended beyond 2011.

Alternative energy financing is based on government support via tax equity that can be used to offset corporate profits and generally used by large banks and corporations to reduce taxable income. During the financial crisis the tax-equity market dried up as only a few players had profits that could be offset by investing in tax equity, leading to a dearth of capital for renewable energy project financing.

Basing energy policy on the tax-equity appetite of large corporate and banking entities is not exactly a cohesive energy and environmental policy that offers a long- term stable path to renewable energy growth. The country needs a new, more rational approach that doesn’t just serve centralized mega projects, but also smaller and more localized resources.

Fossil Surcharge

We propose a simple surcharge on gas and electricity produced using fossil fuels as an alternative to fund the growth of distributed renewable energy for the United States. According to the DOE and the U.S. Energy Information Administration the United States consumes on average 400 million gallons of gasoline per day and generates approximately 20 million MWh of electricity daily, 40 percent of which comes from coal fired plants.

If we simply added a surcharge of 1 cent on each gallon sold, we would generate $4 million dollars daily and $1.46 billion annually. Similarly if we add a $1.0 surcharge for every MWh (or $0.001 per KWh) of electricity generated each day from coal-fired plants, we could generate approximately $3.0 billion annually to fund distributed renewable energy in the form of solar, wind, biomass, energy efficiency and other technologies. These funds could be used to offer grants for local distributed projects for municipalities, universities and other non-profit public facilities, and support R&D efforts in the area, as well as provide some limited guarantee programs for structured transactions with a pool of distributed renewable energy generation assets.

The surcharges would bring a nominal increase in the cost of energy for consumers and would meet some resistance for that reason. However, with the average U.S. household using about 920 KWh per month, at an average cost of $0.15 per KWh, a $0.001 per KWh surcharge amounts to less than $1 a month per household. Similarly, with the average U.S. driver going 12K miles per year at an average of 16 miles per gallon, a 1 cent per gallon surcharge would increase the average monthly cost per driver by 63 cents.

Social Costs

Society has to pay the costs of moving to a more environmentally friendly energy base. We subsidize the oil and coal industries, in part by linking them to national security and the economic viability of the United States. The enormous cost we bear for fossil fuels is unsustainable as we compete within a global market for these diminishing resources. We need to shift our thinking on energy security, sustainability and climate change and invest for a more sustainable energy infrastructure that limits geopolitical risks, creates local jobs and is renewable and local.

In a fast-developing world with more nations competing for the limited fossil fuels, it’s imperative that we continue to diversify our energy portfolio and increase our investments in the sector. We can’t afford not to -- it will determine our economic future and stability of our society.

A small surcharge on fossil fuel based energy can provide a flexible way to help develop distributed renewable infrastructure and generation, with a limited cost to society. As the old saying goes, “you can pay me now or pay me later.” If we choose not to socialize the costs now, they will only increase later and we won’t be a global leader in renewable energy. We must invest in local renewable energy; it’s a matter of national and economic security for our future.

ABOUT THE AUTHORS: John Joshi and Malay Bansal are managing directors with CapitalFusion Partners LLC, a minority-owned advisory firm focused on structured credit and renewable energy financing.