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Eizenstat - Keynote Address

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Former Ambassador and head of the US delegation to the Kyoto Protocol negotiations, Stuart Eizentstat, Partner with law firm of Covington & Burling LLP, delivered the keynote address at the GW Solar …

Former Ambassador and head of the US delegation to the Kyoto Protocol negotiations, Stuart Eizentstat, Partner with law firm of Covington & Burling LLP, delivered the keynote address at the GW Solar Institute Symposium on April 19, 2010. View more info at: solar.gwu.edu/Symposium.html

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  • 1. SOLAR ENERGY: ENCOURAGING PROGRESS DESPITE SLOW GLOBAL GROWTH AND A CROWDED AND CONTENTIOUS US POLITICAL LANDSCAPE Keynote Address by Stuart Eizenstat, Partner, Covington & Burling LLP GW Solar Institute Symposium - April 19, 2010 I am very glad to be here and want to thank Ken Zweibel, the Executive Director of the GW Solar Institute, for inviting me to lead off what will no doubt be a fascinating discussion coming at a very important time. I appreciate the President of George Washington University and the Dean being present, demonstrating their commitment to solar energy. SOLAR ENERGY -- WE LOST TIME AND HAVE A LONG WAY TO GO My association with solar energy goes back to my days as President Carter’s domestic policy advisor. We developed the first solar energy credit and the President installed the first solar panel on the White House. Neither survived the Reagan Administration. President Carter was a prophet before his time, recognizing, before anyone heard the term “global warming”, that conservation and alternative energy were crucial to reduce our demand for foreign oil. That remains the case today. We also passed the Public Utilities Regulatory Act (PURPA) in 1978 as part of the National Energy Act. That law mandated that electric utilities should buy power from renewable energy producers to promote greater use of renewable. Now, as then, oil has been used as a political weapon. But there is the added imperative that now we realize the threat to our planet from the emission of hydro-carbons and the contribution solar and other forms of renewable energy can make to dealing with global warming. I felt like I was coming full circle when I was the lead climate change negotiator under the Clinton Administration, and had the challenge of negotiating the Kyoto Protocol. Then, as now, Congress is concerned about the economic and competitiveness consequences of taking action, and deep political divides exist over how to solve the problem. DC: 3543072-1
  • 2. 2 Thankfully, we now have a President in Barack Obama who understands all the dimensions of our need to reduce our dependence upon important oil. The largest component of our massive trade deficit is imported oil. As the head of Covington & Burling’s international practice, I am fortunate to remain very active on energy and climate change issues. This still includes working with over 70 attorneys and policy advisors worldwide in our Clean Energy and Climate practice to promote cost effective policies and solutions to climate change and energy diversification needs which also help to promote growth and competitiveness here in the United States. These include solar energy, of course. The drive to promote greater use of solar energy in the United States, for example, to heat and cool building structures, to heat water and to produce power for a wide variety of uses, as well as the development and deployment of more cost-effective solar technologies, still has a long way to go. Although we started decades ago, PURPA was implemented primarily at the State level. While some States, such as California, made good use of its provisions to build a solar industry, others did not. To some extent this is understandable; PURPA allows utilities to pay only the “avoided cost” of generating or purchasing from another source, usually fossil fuel. The fossil fuel often has had a lower financial cost per unit to the utility than what it cost solar energy producers to provide solar power as an alternative. Also then, as now, the grid has not been well- adapted yet to facilitate the use of renewables. The Energy Policy Act of 2005 -- twenty-eight years later -- helped by adding a Renewable Portfolio Standard. And we have taken some other steps in the last two to three years, such as the Obama administration’s $80 billion in clean energy investments, but there is more we can and must do.
  • 3. 3 SOLAR POWER’S GREAT POTENTIAL IS BEING TAKEN SERIOUSLY BY OTHERS AND WE MUST STEP UP Solar power holds great untapped potential to reduce US dependence on foreign oil, to reduce green house gas emissions per unit of GDP and overall, and -- using the efficiency and innovation of the US market -- to bring down energy costs while enhancing our national security by reducing our dependence on expensive foreign oil from troubled parts of the world. If we are to keep up with China, India, and others in the market for solar energy, we need to encourage both an efficient U.S. supply response at the same time we encourage market-based demand and a modern energy grid capable of absorbing and distributing solar-generated energy. China -- which has put the full weight of its government, its policy and, therefore, its industry behind renewables and a modern power grid -- in the last two years sprinted ahead to become the largest manufacturer of solar panels. By the end of 2010, some two-thirds of the solar panels in the world will be made in China! Although China is building one new coal-fired power plant per week, and is now the largest emitter of CO2 in the world, surpassing the U.S., to fill its demand for power, which is growing by 15% per year, China is also serious about alternative energy. They recognize the importance of “green jobs” and of a more energy efficient economy. China is serious about and cognizant of every aspect of the economic equation involved in solar and alternative energy, including the need to attract investment from US and other global investors to meet the massive demands of China’s growing market. At the same time, the Chinese government is providing loans (at interest rates as low as 2%) and grants to both producers and consumers to promote solar energy development and use. This strategy includes developing both domestic as well as global supplies of strategic inputs, from rare earth minerals to critical chemical supplies. They are also collaborating with their research and production sectors against a specific target of
  • 4. 4 growing the use of solar power from the current 4% (the same as in the US) to 8% by 2020. The Chinese approach is expensive, cumbersome and relies heavily upon top-down approaches and mandates, but it certainly shows that they are serious about the policy commitment and understand the need to focus both on demand and supply in the solar power market. Fortunately, the United States is making progress in promoting solar energy and there are numerous options for us to do more, and to do it efficiently. MAKING SOLAR POWER ATTRACTIVE, FEASIBLE AND COST-EFFECTIVE The Nobel-prize winning UN Intergovernmental Panel on Climate Change (IPCC) cites three categories of emission reduction policies that countries can use: 1) economic instruments (e.g., taxes, subsidies, tax exemptions and tax credits, carbon markets); 2) regulatory instruments (e.g., mandated targets, minimum performance standards, sector specific emission controls and caps); and, 3) policy processes (e.g., voluntary agreements and consultation, dissemination of information, standards/certifications, strategic planning). There are many opportunities to develop and enhance existing U.S. efforts along these lines, and in so doing to leverage both domestic and international resources to meet our goals. One clear advantage for solar power is that people really like it. Public opinion polls indicate that over 90 percent of Americans believe that it is important to develop and use solar power. Politically, support for solar power should be an easy sell, but there are many challenges that need to be addressed. Solar power still gets but a small fraction of the government economic support provided to fossil fuels, which remain the mainstay of our energy supplies. Moreover, despite sharp reductions in the price of solar panels, the global downturn, combined with more plentiful natural gas, have combined to make it somewhat harder for solar power to compete and expand here without stronger policy support. In addition, our power system is fragmented, and its structure and regulation offer poor incentives for the types of innovation and risk-taking
  • 5. 5 required to effectively promote and incorporate alternative energy sources. Yet, the political momentum in the United States is running against additional stimulus efforts and government incentives because of our massive deficit, and deep divisions exist not only with respect to climate change policy, but in regard to comprehensive energy reform. While I am heartened to see that solar power-related stocks were included in the rising tide that has lifted the broader stock market in recent weeks, the economic and political landscape in the United States remain very difficult, so we have to focus on some specific actions needed to move forward on solar power more vigorously. President Obama and his Administration are now giving solar energy the priority it deserves. The American Recovery and Reinvestment Act of 2009 (ARRA) has a variety of important incentives for solar and alternative energy As the excellent SEIA Year in Review 2009 Report indicates, more than 46 MW of solar capacity has been deployed under Section 1603 Treasury grants, established by ARRA. This allows the commercial tax credit to be taken as a cash grant; the $2000 cap on the residential investment tax credit for solar thermal installations was lifted, allowing a full 30% ITC on solar water heating for homeowners. Solar equipment manufacturers have received some $600 million in manufacturing tax credits under ARRA. The Department of Energy has awarded 60 of their 183 manufacturing tax credits to factories supplying the solar energy industry. The private sector is also stepping up. SEIA indicates that in 2009, venture capitalists invested more in solar technologies than in any other clean energy technology, and total U.S. solar capacity from photovoltaic and other solar technologies exceeded 2000 MW, enough, according to SEIA, to serve more than 350,000 homes.
  • 6. 6 But more needs to be done. We should encourage Congress and the Administration to renew, expend and clarify existing US policies and laws. Under current law, producers may claim a production tax credit for producing renewable energy at a qualified facility during a specified period. For solar energy facilities, the current time limit on facilities “placed in service” is December 31, 2013. The current bill before Congress does not envision an extension. Under current law, taxpayers may claim an investment tax credit of around 30 percent of the cost and they are subject to the same “placed in service” date limitations. There are no proposals or legislation pending to enhance these provisions in any way. Current law also allows taxpayers to apply for section 1603 grants for qualifying costs related to qualifying properties with the same December 31, 2013 “placed in service” limit on solar facilities as under the other programs. Moreover, in March, Senator Chuck Schumer introduced legislation that would impose on 1603 grantees the “Buy America” provision of the American Recovery and Reinvestment Act (ARRA). While I recognize concerns about competition from overseas, in a globalized world, our producers need to be able to price competitively, and often that requires them to source inputs competitively. Rather than restrict, it may make more sense to enhance 1603 grant programs. Finally, an existing program allowing tax payers to claim a discretionary income tax credit for building or expanding certain manufacturing facilities, including solar energy facilities, has effectively expired because it hit its $2.3 billion cap in January. That could be revisited as well. We also will have to open up the US energy network to create a smart grid system that goes far beyond the use of smart meters -- as good as that is -- to allow for the role of non- traditional players and energy supplies, and to give consumers more choices. It will be more of an adaptable network than a one-way grid. For example, Kurt Yeager of EPRI recently
  • 7. 7 remarked that every one of our big buildings should be a power plant, not a power consumer. I work with Roger Platt and the US Green Building Council and they properly believe that solar power is one of the critical ways to help us achieve Kurt’s well-stated goal. But electricity generated by buildings in that way cannot yet be easily absorbed into the grid, and those who can, or might, generate power in excess of their own needs are not able to be compensated at retail rates. There are many ways our system can be made more open, more integrated and able to promote more and better choices by consumers. The Solar Bill of Rights set forth by the Solar Energy Industry Association sets forth a range of issues beyond those I have mentioned that ought to be considered. The federal government could be far more active in setting goals and standards -- including via Home Star and Energy Star programs and the Renewables Portfolio Standard along with other approaches to the power network -- that would encourage stronger competition and more innovation than what we currently see with the current system. Some estimate that it will take $400 billion to fully modernize our whole power system, both distribution and transmission. Clearly, resources of that magnitude have to come from the private sector, but they have to see the value proposition in making those investments. The Federal Energy and Regulatory Commission (FERC) recently sought formal public comments on the extent to which barriers impede the reliable and efficient integration of variable energy resources (VERs) into the electric grid, and on the reforms needed to eliminate those barriers. It is critical that solar power proponents take full advantage of that opportunity. It is important to tell FERC and Congress what will work well and sustainable. We need to explore all of the tools available to us to bring down barriers.
  • 8. 8 We must also use international markets and processes to build bridges, not barriers, to expanded solar power. China and India, which at climate negotiations in Copenhagen for the first time ever committed to take on commitments regarding climate change albeit energy efficiency standards, not actual greenhouse gas reductions, are both our competitors and our partners on clean energy, including solar energy. The Obama administration has active dialogues with them on clean energy, and these involve industry from both sides. So while we must ask them to adhere to WTO and other international rules, and to take on more ambitious and real climate change commitments, we do not gain by isolating our solar and other clean energy production activities from partnerships with them. While we may not achieve a binding treaty in Cancun this year, action by the United States and others, domestically and internationally, on solar energy and other practical solutions is helping to strengthen the resolve of other major emerging economies to act on climate change. Solar energy, like cooperation on protecting the world’s tropical forests, is a cost-effective and feasible way in which all nations can be part of the solution to climate change. Today is the second day of President Obama’s meetings with the Major Economies Forum (MEF) here in Washington. The group includes Brazil, India, China, Indonesia, Mexico and other major emerging economies that are playing an increasingly important role in energy markets and in generating emissions. It is in the US’ interest that the MEF, and the G20, cooperate effectively to generate cooperation on expanding and diversifying clean energy supplies while addressing climate change. Ultimately, this is good for the global economy and for global stability. And it may even pave the way for a truly path breaking and effective global approach to climate and resource use that encourages low-carbon sustainable growth.
  • 9. 9 THE US POLITICAL LANDSCAPE -- CROWDED, CONTENTIOUS AND DYNAMIC As you all know, the lengthy debate over health care reform and deep divisions over how best to stimulate growth and job creation took most of the oxygen out of the room for Congress. A bruising battle now looms over financial sector reform. Despite this, and even though the mid- term elections’ season is fast-approaching, the White House is renewing its commitment to pass energy and climate change legislation this year. Carol Browner has been outspoken, and NEC Director Larry Summers gave a rousing speech on April 6 setting forth the economic and security rationale for action by this Congress. But it will not be easy to get the sixty votes needed in the Senate, not only for a climate and energy bill, but for an energy-only bill. Senators Kerry, Graham and Lieberman within days will unveil an energy and climate bill to be carried forward by Senator Harry Reid. It will reference all of S1462, passed out of the Energy and Natural Resources Committee last summer, which includes a renewable energy mandate for electric utilities, but goes beyond it to cap specific economic sectors in a phased manner, and to try to ensure that a carbon has a price, even without an economy wide target. Many in industry want the certainty of a price on carbon and clear rules of the road, but there are vast differences across various industry groups. For moderate Democrats as well as Republicans, this territory is fraught with peril. On April 15, 2010 Democratic senators, led by Sherrod Brown, wrote to Senators Kerry, Graham and Lieberman with a long list of the demands by those in States with energy intensive industries. Senator Reid has his work cut out for him. But as Larry Summers said in his recent speech in support of comprehensive energy sector reform, “Read the history of great nations...Read how they succeed and how they fail…Their ability to mobilize to solve problems before they are absolutely imminent crises is what determines their longevity.”
  • 10. 10 I appreciate the opportunity to speak with you and look forward to working with you to see that solar energy is a key component of our energy future.

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