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Friday, October 29, 2010

How Government Land Can Jumpstart the Clean Energy Economy

Written by Daniel Goldfarb
Originally published at Americans for Energy Leadership

Recent trade disagreements and Interior Department activities have brought to bear a crucial difference between China and America's policy approaches to their respective clean energy industries; namely, that when America talks about providing capital, it is really only dealing with half the picture. While American policy makers have been obsessively focused on access to financing, China has approached the idea of capital with a broader definition, focusing both on access to funding as well as land.

The importance of policy that makes prime land accessible to this emerging industry is only now becoming clear. Tuesday's announcement, of the Interior Department's approval of the 1000 megawatt Blythe Solar Power Project on public land in California, alongside the groundbreaking of a $2 billion solar development on public land in Ivanpah, California, are steps in the right direction but still falls short of the comprehensive approach to capital that will be necessary to compete with China in the future.

The recent complaint by the United Steel Workers Union to America's WTO representative about the Chinese government's unfair trade practices - including highly favorable land grant agreements with renewable companies - has brought China's aggressive industrial and trade policies into the spotlight. This coupled with the recent efforts of the Department of the Interior: Bureau of Land Management to make public land available for renewable power facilities, make clear that money isn't the only commodity the government must provide to foster the renewable energy sector. Renewable energy sources are in many cases not just more expensive then their traditional counterparts, but larger and more constrained during deployment by certain geographic necessities. Access to cheap and prime land then becomes a necessity for fostering renewable energy production and the markets for these products here in the U.S.

China's holistic approach to providing capital for the clean energy sector has created frequently overlooked advantages for its companies. On both the production and deployment side, China provides cheap land and an expedited permitting process to ensure that companies and utilities with financing are not bogged down by cumbersome permitting and sup-optimal locations. The dual advantages of speed and location cannot be overestimated in a high tech industry whose products are costly to ship and whose effectiveness depends entirely on location of deployment.

The New York Times has published a number of articles chronicling these land-related advantages in China, most recently in "On Clean Energy, China Skirts Rules",
"To help Sunzone, the municipal government transferred to the company 22 acres of valuable urban land close to downtown at a bargain-basement price. That reduced the company's costs and greatly increased its worth and attractiveness to investors.

Heavily subsidized land and loans for an exporter like Sunzone are the rule, not the exception, for clean energy businesses in Changsha and across China, Chinese executives said in interviews over the last three months."
While heavily subsidized land provides manufacturers with lower barriers to entry and inflated assets on their balance sheets, the rapid permitting pace for clean energy deployment provides a constantly growing market for these products. An editorial in yesterday's New York Times, "Remember Renewable Energy?", provides an analysis of the permitting process in American since a congressional directive that mandated 10,000 megawatts of installed renewable electricity on public lands by 2015, "Until a little over three weeks ago, the Interior Department had approved more than 73,000 oil and gas leases since 2005, but only one offshore wind energy project and not a single solar project." For those solar projects that have been approved the process took three to five years, and for America's first offshore wind project it took nine.

The lack of long term incentives for clean energy in the U.S. combined with the long term horizons for constructing a renewable plant create and unhealthy investment environment for potential projects. Even the BLM's new fast track initiative has proven to be slow and cumbersome, with just six of the thirty-one fast tracked projects already approved as it gets closer to the December 2010 deadline for receiving ARRA funds. If America is to compete for clean energy jobs it is going to need not just financing, but the cheap and readily accessible public lands that have fostered past American undertakings.

Much of the American story has been based on the pursuit of new and untamed lands. The frontier myth and its resulting 'lift yourself up by the bootstrap' mentality are deeply rooted in the abundance of productive land our nation has to offer. After reaching the west coast and populating the interior, Lincoln decided to renew the promise of our abundant lands with a massive investment in a transcontinental railway system. This system would not have been possible by simply allocating funds to the appropriate companies, but necessitated a massive amount of land grants and rights of way. A similar model was used to make possible the interstate highway system almost a hundred years later.

Such land-focused policy measures have been applied to America's energy sector before. The oil crisis of 1973 made clear the need for increased domestic energy production. To make domestic oil production more competitive, the federal government subsidized the cost of land and streamlined the permitting process for oil tracts. A May 2010 LATimes article, "Oil Companies Have a Rich History of U.S. Subsidies," noted that, "In the early 1980s, the Interior Department began selling drilling leases at an average rate of $263 per acre compared with $2,224 per acre in the previous decades." In retrospect these measures were unwise, leading to the comparative disadvantage of cleaner fuel sources as well as environmental disasters such as that in the gulf, but it just goes to show the critical nature public land has played in America's energy policy in the past.

The Federal government owns a vast amount of land, and much of it is in the southwest, one of the most productive regions for renewables in country. The Department of Interior alone, whose agencies include the Bureau of Land Management (BLM), the National Park Service, and the U.S. Fish and Wildlife Service, looks after 500 million acres--nearly one-fifth of the nation's landmass. "Big Land, Big Opportunity", a Center for American Progress report released earlier this month, delves into the abundance of opportunity associated with B.L.M. lands:
"The BLM oversees nearly 30 million acres in the Southwest, for example, that have excellent potential for solar power development. The agency is currently evaluating 24 solar energy study areas that could produce 100,000 megawatts of electricity, enough to power 29 million homes. The BLM also manages more than 20 million acres with the potential to produce wind energy. Just the wind projects currently proposed on those lands could produce more than 800 megawatts of power, enough for 240,000 homes. BLM lands also contain abundant geothermal resources, and the agency has leased more than 1.2 million acres for geothermal energy production."
The Department of the Interior is not the only federal agency with vast lands, and not nearly the most compatible with a mission of energy independence. The Department of Defense is steward of approximately 30 million acres of domestic land. A majority of this land lies in the western part of the country--areas prime for solar, wind, and geothermal power. Estimates show that the DoD currently owns nearly 2 million acres of land with water of requisite heat and depth, capable of generating up to 926 GW of geothermal power. The Navy has begun to move in the right direction with its land lease for the 270 MW geothermal plant at China Lake run by Caithness Energy, which provides enough energy to operate the entire base and sell back to the grid. Such land lease mechanisms provide the utility with prime land at cheap and fixed long-term rates, the military base with cheap and dependable electricity, and the surrounding community with a non-polluting and job creating energy facility in their region.

In the absence of any comprehensive climate legislation and with a new energy agenda distant, the U.S. will have to use all of the tools in its limited arsenal to stay competitive. As the world's third largest country by landmass, with an abundance of high quality land for renewable production, the federal government will have to find ways to sell and lease its vast resources to provide American companies with a fair shot. The emerging clean energy industry provides opportunities to re-discover America's bounty and use it to create jobs and stave off environmental catastrophe. This is a policy every American can get behind; more effectively utilizing resources, making sure good jobs are created in America, and rather than adding to the deficit, creating new revenue. With our history of using American land to drive economic prosperity in mind, let us listen to the words of BLM Director Bob Abbey, "We have truly arrived at America's new energy frontier."


mikesac said...

Thanks for the update.It is good to know about what is happening regarding these policies around the world.
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We put the Diesel in Biodiesel. said...

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