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Friday, October 22, 2010

Media Controversy over Stimulus-funded Clean Energy Grant Program Lacks Substance

By Jesse Jenkins and Devon Swezey

A slew of critical news articles about a clean energy stimulus program have suggested both that the program is a government boondoggle and that the Obama Administration has inflated the number of jobs supported by the program. Both contentions are misleading.

One article published by MSNBC, titled "Hot air? White House takes credit for Bush-era wind farm jobs," begins this way:

"The Obama administration is crediting its anti-recession stimulus plan with creating up to 50,000 jobs on dozens of wind farms, even though many of those wind farms were built before the stimulus money began to flow or even before President Barack Obama was inaugurated."

It is true that some of the projects that received funding under the stimulus-funded Section 1603 cash grant program went to projects that had completed construction prior to the stimulus bill. The MSNBC article, written by journalist Russ Choma, notes that 11 of the 70 major wind farms that received grants had erected their wind towers during the Bush Administration.

The problem is that this fact fundamentally misses the point.

As we noted yesterday in a post on this blog, the stimulus-funded grant program did not waste taxpayer money.

Projects that received cash grants under the Treasury's section 1603 stimulus program (the subject of recent criticisms) received the grants instead of tax credits that would have cost the government an equivalent amount.

Here's the deal: Since most clean energy project developers are too small to have a large tax appetite, they partner with larger financial institutions to fund the project, which then claim the benefit on the project's behalf. However, when the bottom fell out of tax equity markets amidst the financial crisis of 2008 and the resulting recession, many tax equity investors withdrew from projects on the drawing boards and walked away from some projects already underway. In such cases, the cash grant program was essential to keeping the project financially viable, under construction, and putting Americans to work.

Furthermore, the cash grant program did support more than 50,000 short-term jobs during the height of the recession and nearly 4,000 long-term, permanent jobs, according to conservative estimates.

The MSNBC article suggests that the Obama Administration is counting jobs resulting from Bush-era projects in its estimates of job creation resulting from the Section 1603 program. According to the article, Administration officials have claimed that the stimulus program has supported 50,000 jobs. But that estimate, often invoked by the American Wind Energy Association (AWEA), is corroborated by a recent study by the Lawrence Berkeley National Laboratory (LBNL) on the job creation impacts of the grant program that explicitly excludes jobs associated with the Bush-era projects.

Indeed, of the nearly 6.2 GW of newly installed wind energy projects that elected the cash grant incentive, the LBNL analysts discount nearly 60% of them as projects for which the grant may not have been essential for completion (e.g. projects were already completed or would have otherwise been able to utilize the production tax credit, or PTC, to help finance the projects).

According to LBNL's model, construction and operation of the remaining 2.4 GW of new wind projects - which would not have been completed without the cash grant program - "supported 51,600 gross short-term job-years during the construction phase, and 3,860 gross long-term jobs during the operational phase."

Administration claims that the program supported "50,000 jobs" are thus supported by this independent analysis. Further, some additional jobs were also likely supported at construction projects that had already begun but would have otherwise halted amidst the tumult of the financial crisis and the recession. These jobs, which may have been saved by the cash grant program, are not included in the LBNL estimate, which is thus likely on the conservative side.

One of the other main criticisms leveled by the MSNBC article appears to be that most of the jobs supported are short term. Well, what else would be expected from a short-term stimulus measure supporting construction projects?

The goal of stimulus programs, after all, are to get Americans to work during an era of economic crisis and soaring unemployment, and in that vein, the cash grant program helped support at least 50,000 American jobs, all while stimulating significant private-sector investment activity - for every dollar of federal grants, $2.33 in private investments flowed to clean energy projects.

As we argued previously, while the stimulus was hastily constructed and not particularly well optimized, the program ultimately helped forestall the collapse of the domestic clean energy industry. Total deployed wind capacity would have certainly been lower, and bankruptcies, shuttered projects, and laid-off employees far higher without the program. This would have been a major setback and killed any momentum toward efforts to create a robust clean energy economy in the United States.

The cash grant program could certainly be improved in a number of ways, which we detailed in our previous post. But notwithstanding the controversy that the media - and multiple Congressional campaign offices - have manufactured around the program, it is yet one more example of how public investment in clean energy technologies can support job creation and leverage private funding for a cleaner, more secure energy future.

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