Letter to President Barack Obama regarding bill to eliminate Renewable Project Tax Grants/Credits
March 8, 2010
Hon Charles Schumer, Senator New York
Hon Robert Casey, Senator Pennsylvania
Hon Sherrod Brown, Senator Ohio
Hon Jon Tester, Senator Montana
Re: Proposals to Amend Section 1603Tax Grants/Credits for Renewable Energy Projects
First let me say that I am not at all in the practice of writing to members of Congress regarding my personal or professional position on any matter. I believe however that this is a matter of extreme urgency and the timing of your recent proposal could not come at a worse time for the renewable energy sector of our economy.
I am the CEO of a New Jersey based renewable products and Services Company focused primarily on solar Photo Voltaic developments in New Jersey. Prior to launching this business, I spent over three decades in the electric utility industry in various engineering, operational and executive management positions. I chose to go into the renewable energy business not to supplant my former industry but to build upon its successes and to resolve the longstanding problems that we face in this country and indeed the world.
I listened in shock to your press conference last week announcing your opposition to the use of these incentives for renewable energy projects in the United States unless the materials are manufactured in this country. I must confess that I originally considered this press conference to be just another one of those made-for-media Washington events intended to get air time. I could not imagine that any knowledgeable staff or member of Congress would take this proposal seriously.
I readily acknowledge that I am politically naïve and might not have the whole picture. But the part of the picture I do have stands in stark opposition to your underlying thesis that American Tax payers are somehow funding the development of jobs overseas at the expense of local American jobs. This thesis is seriously flawed and taken to legislative action will impede the use of Section 1603 funds intended to stimulate the renewable energy sector. In short it will result in the destruction of a nascent industry and kill the one bright spot in the current economic landscape.
I wonder what fact base you have relied upon in developing your position? Let’s examine briefly a few of the facts not discussed in your press conference.
1. Manufacturing jobs are being created overseas at taxpayer expense: It is true that much of the manufacturing capabilities in this country have moved offshore. This is a reality that has occurred over the last several decades. I saw it Senators Brown and Casey when I lived in Ohio where I witnessed American mineworkers, autoworkers and steelworkers drive their wages and benefits cost out of sight while their productivity and skills declined and lazy managements took the short view and shipped jobs first out of state and eventually overseas to reduce labor costs. Tax and other governmental policies, such as those in place in my adopted state New Jersey further aggravated the situation and resulted in a mass exodus of manufacturing capabilities and created a disincentive for people to develop new local bases of manufacturing.
Your proposal will not resolve the underlying issues that drove manufacturing off our shores. Let’s assume for the sake of argument that someone had a large amount of capital that they wanted to invest in manufacturing capacity in the US-as unlikely as that is. Where will the technology and processes employed come from? They will necessarily have to license that technology from companies operating in those other countries. If that new source of manufacturing gets to the point of actually making and selling products, those license fees and royalties will still flow overseas to the owners of that technology. Presumably they will invest those returns where they do the most good for the owners of the capital, do you imagine that will be to create even more manufacturing in the US?
2. The Buy American requirement will create US jobs: Again assume our hypothetical capital infusion results in quickly deployed manufacturing capacity. It is reasonable to assume it will be no greater than the total capacity required to compete for the limited stimulus backed projects in the US since it will be at a cost disadvantage to other producers around the world. Those higher cost goods now hypothetically manufactured in the US will not have a broad market around the world. The more likely reality is that we will see the demise of the infant renewable market place just as we did in 1980 and that means that tens of thousands of green jobs that can only be created in this country will disappear.
As emotional as the issue of jobs is, the largest benefits to be derived from the growth of this segment of the economy are the reduction of waste, increase in economic efficiency and improved energy security of the US and the world. The US economy benefits from the growth of this segment in several critical ways that your proposal will undermine. First, the source of much of the world’s capacity to purify the raw materials and grow silicon wafers used in the manufacture of solar PV modules is based upon technology owned and machinery designed and built in the United States. That technology has benefitted from the world-wide growth of solar PV deployments. You didn’t seem to notice when US companies were creating American jobs at the expense of all those other “foreign” economies but your proposal will surely have an adverse impact on those US positions going forward not to mention failing to move us forward to the energy independence that is vital to our strategic interest going forward.
3. The ITC stimulus is intended to revive the American Economy: While some will fail to acknowledge this fact it remains that we are just one part of the world-wide economy. The successes in reversing the economic downturn in this country are linked to the revival of all of this country’s trading partners—the world! The average American consumer uses four to six times more energy per capita than the rest of the world, including other OECD Nations. We pay as little as one third to one eighth what those other consumers pay per kilowatt-hour for electrical energy. In other words, we are energy pigs and we have enjoyed ready access to cheap energy for a long time. Who exactly do you imagine has borne the brunt of that burden if not those other nations and their people? Either all boats will rise together or most assuredly our economic recovery will fail. There is simply no reason those other economies will continue to support our aggregious waste of the planet’s limited resources, nor should they.
The strength and viability of the renewable energy segment of this economy has absolutely nothing to do with technology or where products are manufactured. It has everything to do with financial certainty. The most significant benefit of the Section 1603 ITC grant is that it gave financial certainty to renewable projects that attracted additional capital necessary to make the projects financially viable. There are other ways to accomplish the same end but it will take policy and regulatory initiatives to accomplish that. The reason that Germany, a location with the same solar insolence as New Jersey, has 41% of the world’s installed solar capacity relates to the cost of energy in that country. Post-oil embargo many countries intentionally increased the price of energy in all forms. This resulted in greater economic and energy consumption efficiency but most importantly it helped to close the gap between traditional sources of production and emerging alternatives. As mentioned before, the US did not take that course of action. Look at the USEIA available information and you will see that the average real price of electric energy delivered at the end of 2007 was the same as it was in 1960! So while other countries were closing the price gap we were widening it. To close that gap today would take an 80 to 300% increase in the price of electricity. I do not know any regulator or politician with the stamina to withstand the onslaught from disaffected consumers if we tried to accomplish this today. Maryland and others tried and largely failed in the last several years to increase energy prices.
So where does that leave us? We’ve been there and done that in the early 1980’s and if we follow your proposal we will end up there again. We will watch as the rest of the world deploys renewable energy resources and drive their productivity up, their costs down and we witness our economy and standard of living fall to unprecedented lows.
I could continue with other examples of why this policy initiative is flawed. It is my sincere hope that your combined staffs will do some real fact based discovery before proceeding on a course that is likely to extinguish the one bright spot in our economic recovery. Much has been said in the last several years regarding short term focus and quick fixes. These are times that require a steady hand and strong leadership. Examine the facts before proceeding and I am confident you will conclude that the viability of this nascent renewable energy industry will be undermined by your proposal.
I am sure that you are hearing from many other points of view regarding your proposal but I do hope that you will instruct your staffs to reach out, dig in and research the likely consequences-intended and unintended-before proceeding to author legislation or lobby the administration to destroy a critical component of the financial certainty necessary to bring renewable energy projects to life in this country.
Stephen E. Morgan
Hon Harry Reid, Senate Majority Leader
Hon Max Baucus, Senate Finance Committee Chair
Hon Nancy Pelosi, Speaker of the House of Representatives
NJ Congressional Delegation
Secretary of the Treasury, Timothy Geithner
President, Barack Obama