Wrapping up the BETC debate
By Lisa Adatto of Portland, Oregon. Lisa is the Oregon Director of Climate Solutions, promoting realistic solutions to the climate crisis.
As the dust settles from the legislative session, we have the opportunity to look calmly at the issues. One that has gathered more ink than others (particularly in the Oregonian) is the Business Energy Tax Credit, the BETC. What happened with the BETC? What should happen in the future?
The Oregonian got the story wrong, or to use today’s journalistic parlance, “half right”. Week after week, article after article, the Oregonian wrote about the costs of the BETC program. The Oregonian was right to point out how the program grew too quickly with loose controls. They were right to point out how expensive the program was and to highlight cases of abuse. On those points, the Oregonian has helped our State leaders understand and improve the program. But the Oregonian was one-sided to only focus on the costs. They missed the bigger picture: right now the BETC is critical to Oregon’s economy. It is a key economic development tool.
One of the myths about the BETC is that it is not necessary; that most of Oregon’s clean energy projects would go on without a BETC. This may be true for some of our largest wind farms. In fact, the new legislation phases out the BETC for large wind programs. But during the last month I have talked to hundreds of clean energy executives. Without the BETC, most of our transformative projects including conservation, energy productivity, solar, wave, community wind, electric vehicle, battery and solar components, biomass, wood pellets, LEED buildings, biofuel, truck retrofit and others would stop. In addition, we would lose our most important tool for attracting clean energy manufacturing to Oregon.
Oregon legislators clearly understand the thousands of jobs, innovation, company headquarters, new business ventures, tax revenues, reputation for leadership, and positive economic impacts of the clean energy sector to Oregon and the critical need for the BETC program. The main outcome from the recent legislative session is that we saw continued strong support for the program. In addition, the Governor’s office, the Oregon Department of Energy and the legislature improved the BETC by adding sensible caps, timelines and controls, accountability and transparency. Our forward-thinking policy-makers were smart: they fixed the BETC to make it more accountable while still preserving the program’s essential role in creating jobs and economic benefit for the people of Oregon.
BETC is not just a cost; it is an investment. Consider this: every year Oregonians spend around nine billion dollars on out-of-state energy. This money is gone and cannot create new companies, projects, local jobs and tax revenues. Is the BETC the answer for the long term? The BETC has accomplished a lot. Other financial investment programs may emerge to spur clean energy and take the place of the BETC. But for now and the immediate future we need the BETC to continue growth in this important sector.
Discussing costs is legitimate and necessary. But only discussing costs misses the point. Like companies that invest in marketing to get new accounts, like families that invest in college educations to prepare their sons and daughters for the future, States need to invest in their economic health. The BETC helps get Oregonians back to work. Working Oregonians will create tax revenues to fund our schools and essential services.
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March 05, 2010
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Mar 5, '10
"They missed the bigger picture: right now the BETC is critical to Oregon’s economy. It is a key economic development tool."
Ah yes....so lowering tax liabilities does increase economic growth.
Mar 5, '10
Some important lessons learned from the BETC can be applied to other sectors of the Oregon economy.
On one hand, the BETC program has been enormously successful. Due to the clear benefit of reducing state tax liabilities, the program has grown substantially over time, totaling more than $130 million in 2009 alone. This led to an expansion of renewable energy and energy efficiency projects across the state and even to modest job growth in this sector. This should be an example of how reducing taxes can increase economic growth and create jobs.
On the other hand, the BETC program is an example of poor government planning and picking winners and losers in the economy. Unfortunately, the tax credit only targets government-preferred technologies that lead to less efficient growth than would broad tax cuts. Also, in 2007, the Oregon legislature significantly increased the tax credit for certain renewable energy projects and manufacturers without establishing proper measures to prevent manipulation and provide stability to the cost of the program. This led to an ever-increasing amount of applications filed and a substantial hit to the state’s General Fund.
The BETC program teaches some valuable lessons. Reducing tax liabilities of businesses increases economic growth and job creation, but propping up certain industries over others leads to wasteful manipulation and unfair favoritism.
11:22 a.m.
Mar 5, '10
The BETC program teaches some valuable lessons. Reducing tax liabilities of businesses increases economic growth and job creation, but propping up certain industries over others leads to wasteful manipulation and unfair favoritism.
Actually Todd, I learned a very different lesson.
When appropriately targeting for desired long term outcomes (pollution control, local jobs creation, and long range energy independence), make sure that you don't accidentally create perverse incentives that lead to outcomes not desired by the designers.
Mar 5, '10
Actually, Todd, for the most part businesses didn’t take advantage of the BETC because it reduced taxes. 72% of BETCs dollar value has been turned into cold cash through exchanges with pass through partners. So businesses didn’t do things in Oregon because we cut their taxes. They did it because we gave them money, a good bit of money.
What BETC proves is that if you offer a businessperson 50% of the cost of their business idea, they’ll pay attention to your state. 50% -- and the business owners get to keep all ownership. Most investors expect some ownership if they pay 50% of the cost of a business. Not Oregon.
We still do have limits on this, Oregon will only pay 50% -- up to certain caps: $10 million if you’re building a biomass facility, small wind farm, or doing energy research and development, $20 million if you’re building a manufacturing plant for renewable energy products, like solar panels. Obviously $20 million is not 50% of a manufacturing plant that costs, $100 million. But $3 million is half of a $6 million investment. We’re on course for both types of investments by Oregon via the BETC. Is there any other investor that will give you $20 million – and not ask for any ownership interest.
There is no doubt that BETC has drawn investment (mostly of machines made elsewhere) and interest and a reputation to Oregon as a leader in clean energy.
What we don’t know is if we can afford the slow economic growth our huge investments have engendered.
Most of the companies we’ve given BETCs to won’t pay much in Oregon taxes. They won’t pay income taxes since they won’t sell much in Oregon, and we only tax on Oregon sales. They won’t pay much in property taxes, because they’ve gotten huge property tax breaks. That leaves their employees. According to Democratic House Leader, Dave Hunt, BETC has created 1800 direct jobs. It’s hard to imagine that 1800 taxpayers will be paying in income taxes the $90 million BETC will drain from our tax collections this year. That would be $50,000 each in Oregon income taxes…that’s likely more than most of their salaries. Their Oregon taxes will likely average $2-3 thousand each. Sure those employees will be spending some money at the local gas station and grocery store, and those businesses might be paying a little more in income taxes as a consequence. But will the investment work out?
Meanwhile, we’ve made some hard choices. What we spend on BETC subsidies we take away from the state’s core responsibilities: education, health care and public safety.
The idea that it is the state’s job to lure business isn’t new, but the BETC has taken it to a whole new level. And I’m fearful that we’ve added one new area for states to compete against each other in their race to the bottom.
Mar 5, '10
Jody,
Good analysis. I do disagree with some of it obviously. ;)
Money is fungible. Yes most of the BETC was done in pass through agreements (perhaps we should assess job creation and 'success' in Wal-mart and banks that took advantage of this...Ha!). But the cash received by the original BETC recipient still lowers the cost of doing business. Lowering taxes or lowering the cost of doing business is the same thing in my mind. Both lead to increases in economic growth.
Pat,
I certainly understand your argument as well. I suppose our disagreement would come down to fundamentals. I believe it may come down to whether one thinks a few politicians can make better choices than millions of Oregonians making their own individual decisions voluntarily.
I obviously would like more power in the hands of the people. If certain Oregonians want more renewable energy then they can pay for the full above market cost of such energy through a green power program. But when it comes to people's wallets, true colors are shown. Average statewide participation rates in these programs are a dismal 1.29%.
On another note, many have used the argument that promoting renewable energy is for the 'common good' because it will help us reach those magic two words 'energy independence'. For that reason, some advocate increasing reliance on solar panels, wind mills, and other 'politically preferred' renewable energy sources.
Unfortunately, the argument is completely off the mark. Energy security and renewable energy generation have almost nothing in common. Energy security is regarding the threat of someone controlling our energy supply and the possibility of supply disruptions by rogue nations that could have negative economic effects.
Energy security is generally involving transportation fuels not electricity. Solar panels and wind mills generate electricity but do not move our vehicles from point A to point B. Oil accounts for a very small percentage in electricity generation in the United States: less than 1% in 2009. Thus adding renewable electricity to the grid does almost nothing to reduce dependence on foreign oil.
Energy security in the electricity sector has been achieved for the most part. The success in this sector is due to the use of highly available and affordable domestic coal which meets almost 50% of our electricity demand.
3:18 p.m.
Mar 5, '10
OK Todd. Here goes:
.....millions of Oregonians making their own individual decisions voluntarily.
The idea of an informed citizenry making rational decisions in their own self interest (morally overlaid or otherwise) is the central fallacy of both liberal and libertarian thought. Most of us, educated or otherwise, factor in all sorts of irrelevant or peripherally relevant bullshit into everything we do. We can't help it. We are thinking animals in whom reason only occasionally overrides instinct, genetics, and early life environmental factors including parenting.
.....Oregonians...can pay for the full above market cost of such energy through a green power program....Average statewide participation rates in these programs are a dismal 1.29%.
True and not surprising. There will never be widespread participation until the two prices are close to the same. I am a member of the "personal virtue" crowd on this one and I revel in the contempt sent my way by Cheney acolytes on the topic.
Energy security is regarding the threat of someone controlling our energy supply and the possibility of supply disruptions by rogue nations that could have negative economic effects.
Which ain't what I said or meant. Although it's always fun to wonder how the cost benefit analysis between renewables and fossil fuels stacks up when you factor in the (at least) 2 trillion spent, the loss of ethical leadership in the eyes of the entire world, and the damage done to the Bill of Rights, inherent in fighting a war to protect the flow of petroleum while couching it in completely dishonest and irrelevant terms, but that's a different post.
What I said was "energy independence". Meaning to apply the concept first to Oregon and as much as possible right down to the local level and the individual homeowner.
Energy security is generally involving transportation fuels not electricity........
Basically, on the rest of your argument, we'll part company on three points:
1)You address coal and other petroleum products seperately. I see them as part of the fossil fuel continuum.
2)The technology is already mature regarding cars, trucks and trains that run on electricity. Once ramped up, we will get both economies of scale and storage for clean generated energy. Right now in the Northwest, of course, we have hydro, which is the biggest storage battery in the world if allocated correctly.
<hr/>As long as you see citizens as politically mature and rational decision makers acting in their own enlightened self interest, we will find little common ground on this issue and a lot of others.
But that's OK, because we'll be allies in arguing that this same lack of intellectual rigor around solutions applies equally to educators, who have their own set of elegant but unproven theories around getting little Johnny to the point where he can figure out that 2+2=4....
I mean....Geeze......I'm all for originality in Ph.D. dissertations, but after a few hundred thousand "original" ideas have been floated, someone needs to actually implement the ones that have shown to be effective.
But I digress.....
Mar 5, '10
Pat,
Good comments. I know that our disagreements are fundamental in some respect.
As I am about to walk out the door, I will address one aspect of your last comment. Although I am sure we could go back and forth for hours....
"We are thinking animals in whom reason only occasionally overrides instinct, genetics, and early life environmental factors including parenting."
If you believe this, then does this mean you hold politicians up on a higher plane? Do you think that somehow politicians know better for us than we know for ourselves?
I ask this because I have met many politicians (dems and repubs)....and it is far from the truth. :)
Mar 5, '10
No one is mention that BETC is a off balance sheet expense. That this spending is not even in the budget.
Why don't people want to do whats right, lets first get the big picture right and help America.
It's a fact: The freer the society the higher the standard of living of the poor.
We're workign to support government more than we're help the people, where are our values, honesty, and ethics.
To make us great again we need more personal freedoms not less. Please stop putting in bureaucratic, regulative, nightmares. While government is miss-informing us both on taxes and spending while limiting transparency, all this is just wrong.
Why are we trying to hurt the poor with all this waste!!!!!
Mar 5, '10
The idea of an informed citizenry making rational decisions in their own self interest (morally overlaid or otherwise) is the central fallacy of both liberal and libertarian thought. Most of us, educated or otherwise, factor in all sorts of irrelevant or peripherally relevant bullshit into everything we do. We can't help it. We are thinking animals in whom reason only occasionally overrides instinct, genetics, and early life environmental factors including parenting.
So there it is; we finally have it. "We can't do it, so you're deluded if you think you have". The reason for your cop-out to Dems and contempt for real progressives. You've turned our "must have" bit into a "cannot expect". Dr. Freud, can you imagine that there are more people in the world than neurotic Germans? Spot on, with your neurotic Germans, though.
So, quit increasing budgets for education if there's no hope that the electorate will be smart enough to vote their interests. Send 'em all to boot camp style vo-tech ed! The function of the arts is to let us imagine clearly what we will never accomplish? And I guess you've never really got that "human domestication" bit; probably sounds like a pretty good idea to you!
The idea of an informed citizenry making rational decisions in their own self interest (morally overlaid or otherwise) is the central fallacy of both liberal and libertarian thought.
That's just incredible. You have no room to ever criticize my style.
8:12 a.m.
Mar 6, '10
Todd,
What I think about the republican style of government is that "we" send these guys there to focus, and that most of them do that pretty well. So regarding domestic traquillity and promoting the general welfare etcetera, you have some folks with a lot of expertise in various disciplines and a dedication to accomplishment.
Zara,
You draw the wrong conclusion. The point is to be self aware about these built in obstacles and strive toward reason and dispassion despite the built-in negatives.
As for who has standing to criticize. When did any of us let something like "standing" interfere with a good rant?
I know that you and I sure don't.
Mar 6, '10
The writer carefully avoids the foundational problems with BETC - that is that our governor lied and ordered others to lie in order to get the program passed by Salem in the first place. For that reason alone the entire program should be scrapped, reviewed and then properly re-introduced to the legislature.
Mar 6, '10
I agree it is an off balance sheet expense and the Governor wanted the data to be massaged so it looked good. IMO, BETC is "trickle down" ecomonics at it's worst. There is no accountability or transparency for this. These types of programs - just like refundable tax credits - create a cottage industry of fraud, waste and abuse. I attended a trade show last weekend and one of the products was solar panels. Almost without exception, promoters said the gov't covers 2/3 of the cost. Gov't = us - taxpayers!
Mar 7, '10