As the federal spending cuts known as sequestration begin to take shape, analysts are considering the potential impact it will have on programs. Mandatory spending, such as food stamps and social security payments, is protected. But discretionary spending, the category that includes research funding for solar and wind, is on the chopping block.
Windpower Engineering and Development reached out to author and economic researcher Chris Martenson for perspective. Martenson has said these cuts are only the beginning. Further budget cuts are set to go into effect next year, he says, followed by flat spending for a decade, delivering the proverbial nail in the coffin to U.S. energy research.
With his mass of 5.6 million YouTube followers and as founder of PeakProsperity.com, Martenson’s counsel has been sought by the UN, UK Houses of Parliament and U.S. State Legislatures. With a focus on macro trends, he continues to be a powerful figure on issues facing the global economy.
Martenson took some time to answer questions about the sequestration and its possible effects on renewable energy funding in the U.S. He also offered some insight about how the country can turn things around.
1. What kind of blow does sequestration deal to the solar and wind industries in the U.S.?
This is difficult to assess at the moment with any great clarity. We know how much of the sequester cuts will fall on each department if the formula is applied evenly according to the Budget Control Act. The OMB has released a breakdown at that level and the numbers that apply to renewables are:
Department of Energy
The Department of Energy will have to cut 7.8% from all defense related activities (an effective 13% cut given where we are in the budgetary year) totaling some $1.3 billion from all nuclear and related activities (such as environmental cleanup of same).
The non-defense related components get dinged at a 5% rate (for an effective rate of ~8% to year end). The related programs that would affect solar and wind are:
- Innovative technology loan guarantee program loses $2 million out of $38 million.
- DoE Science program loses $245 million out of $4,904 million.
- Energy efficiency and renewable energy program loses $91 million out of $1,821 million.
- Advanced Research Projects Agency loses $14 million out of $277 million.
Bureau of Land Management
- Management of Lands & Resources Loses $52 million out of $1,041 million.
National Science Foundation
- Research & related activities needs to cut $290 million out of $5,754 million.
The difficulty here is that we don’t know what the various departments will do in order to save their required amounts. They may dip into each program equally or, more likely, they will see where money remains that has not yet been spent and make decisions from there.
All that has to happen is the top line savings. How that happens at the intra-departmental level is going to involve a lot of politics and difficult decision making.
The Department of Energy needs to find just over $350 million in savings from their non-defense activities. Some of that will certainly fall on current solar and wind projects. Again, we can’t know how much or which ones until the DoE makes it decisions and announces them.
The BLM is included here because of their role in permitting wind and solar projects on public lands. Here we can be reasonably certain that such activities will slow down as a consequence of their needing to save $52 million which will almost certainly have to come in the form of furloughs given their budget realities.
Solar and wind also benefit quite a lot from various tax credits. It bears observing here that the sequester only applies to expenditures, not revenues, so it has no impact at all on the solar and wind tax credits. However, the next round of budget discussions will almost certainly include new revenue discussions and those tax credits could well find themselves in the spotlight. The industry needs to be sure the importance of those tax credits are well represented.
2. What could be the consequences of anemic U.S. funding for renewable energy research at national labs, companies and universities?
The U.S. is already relatively underfunded and under-supported in the fields of renewable energy compared to other countries, and even though the sequester is a very small amount of the overall U.S. budgetary pie, the impacts will be much larger than the percentages might imply.
The consequences of underfunding include losing more of our technical edge to competitors, and failing to reduce our reliance on dwindling fossil fuels in a timely and prudent manner.
More subtly, people in graduate school make their career decisions in part on whether sufficient economic support exists in their chosen fields. By taking an already small amount of federal support for renewable even smaller, we will be discouraging talent from being attracted to and supported within this incredible important field.
3. Where does the U.S. stand in relation to China, our biggest competitor, on renewable energy development?
The U.S. is committed to spend less than $2 billion on direct research projects in renewables at the federal level in 2013 pre-sequestration, and spent a total of $51 billion across the entire industry in 2011 when counting both private and public spending. 2013 and beyond are shaping up to be poor years for increased U.S. federal spending with the wind industry uncertain if the production tax credit will be renewed. If not, some estimate a decline in wind projects to just 1.5 GW installed, a loss of 88% yr/yr.
In 2011 the U.S. installed 6.8 GW of wind and a record 13.2 GW in 2012 for a total installed base of 60 GW. China, by comparison, stands at 75GW making it the largest in the world, and is on track to install 18 GW in 2013, matching its 2012 installation level.
Further, China has committed to spend at least $80 billion per year in research and direct investment in renewables for the next 10 years. That $800 billion commitment utterly dwarfs that of the U.S. at this time.
China has obvious goals in terms of manufacturing alternative technology and there is very strong state sponsorship of those industries. The U.S. is pulling back at this time because the politics are quite unfavorable. Solyndra is the poster child for this dynamic.
The U.S. is already well behind China and slipping further. One mistake the U.S. is making is in acting as if the shale gas and oil revolution is permanent. It is not. The fields decline quite rapidly and we have the opportunity to tap them once and do something with that energy once.
Any decent long-term strategy has to include a plan for where we want to be when those resources are exhausted. China seems to have such a plan. The U.S. does not.
4. What can the renewable energy industries do to ensure progress in the future?
The most important thing is to help shift the narrative so that we can individually and collectively make better energy choices and decisions.
Hearing Obama talk of “100 years of natural gas” is a clue that we have the wrong narrative in place. That 100 years is true if, and only if, we don’t increase consumption at all, and every bit of the resource no matter how uneconomical under current terms can and will be accessed. Neither of those things are even remotely possible.
Because we currently hold that narrative, efforts are underway to get the gas out of the ground as fast as possible and then export some of it in liquefied form. Also, the desire to pursue alternative forms of renewable energy has been diminished because many now hold the view that we have too much natural gas to worry about such things right now.
If we held the view that we have a finite amount of natural gas and that our most responsible course of action was to burn it quite judiciously and over the longest time frame possible, then everything would change.
That is, if our ‘duty’ was not to get it out of the ground as fast as possible, but to make it last as long as possible, then we’d behave very differently.
Think of what would change if we had that different narrative installed and running. We’d be more secure as a nation as we’d be insulted from chaotic world energy market dynamics. We’d be putting less CO2 into the atmosphere. We’d be giving ourselves the gift of time to face the various resource predicaments that are now looming large such as in fresh water, soil, declining net energy from conventional sources, and pollution.
The renewable industry needs to take the lead in getting a new story out there that the public wants strongly enough that politicians will someday join them. That is, instead of fighting fossil fuels on just the economic dimension of cost, the entire discussion needs to be reframed. If not, the risk is that fossil fuels will always remain just slightly more cost-effective than renewable all the way up to the point that their cost torpedoes the economy and prevents our society from investing in anything grand or highly technical.
Renewables are truly our future and it is up to the industry to proactively state its case in the highest possible terms that go well beyond the numbers. All cultural shifts require an appeal that lifts well above the tactical level and frames the new story on the moral level and that is what is required here. If properly oriented, what people can accomplish is always surprising.
Filed Under: Policy