Trump $1T plan may build on mixed Recovery Act results

Umair Irfan, E&E News reporter

Published: Wednesday, November 23, 2016

A new administration, a new plan for energy investment.

One of President-elect Donald Trump's biggest agenda items is a trillion-dollar infrastructure bill spurred with $137 billion in tax credits (Greenwire, Nov. 21). The energy sector is poised to do some of the lifting through pipelines, transmission lines and coal export terminals.

The big investment push out the gate echoes the American Recovery and Reinvestment Act of 2009, a massive stimulus bill President Obama signed shortly after taking office, a response to the financial crisis and recession.

Though Obama's and Trump's programs have different underlying motivations, the key benchmark for both of them is the same: jobs.

But experts say the past eight years show that federal job creation efforts are expensive, politically perilous and hard to quantify, especially in the energy sector, where market forces can undermine gains in one area with losses in another.

"I am leery of the government's aptitude to identify market winners," said William Yeatman, a senior fellow at the Competitive Enterprise Institute (CEI), who described the Recovery Act as "more of a warning than a green light for the next administration."

Still, the Recovery Act may have a few lessons for Trump, and if jobs are the focus, clean energy investment might still be the best path forward, offering a mote of hope to advance the fight against climate change, analysts say.

On his campaign website, Trump said he plans to "[p]ursue an 'America's Infrastructure First' policy that supports investments in transportation, clean water, a modern and reliable electricity grid, telecommunications, security infrastructure, and other pressing domestic infrastructure needs."
"I'm the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it's the greatest opportunity to rebuild everything," Trump strategist Steve Bannon told The Hollywood Reporter. "We're just going to throw it up against the wall and see if it sticks."

The Obama administration had a similar attitude to the stimulus bill, offering grants, loans, loan guarantees and investments to projects across the economy. The Congressional Budget Office estimated the Recovery Act will total $831 billion between 2009 and 2019, higher than an initial estimate of $787 billion.

A large chunk of the bill also went to energy projects, particularly clean energy and energy efficiency.
Yet, seven years after the Recovery Act went into effect, not everyone agrees on its effectiveness at creating jobs, its success in advancing clean energy and its impact on fighting climate change.

DOE's 'economic mission' under Obama

In February, the White House Council of Economic Advisers (CEA) issued a report on the energy programs funded under the Recovery Act.

Just over $90 billion went to clean energy programs, with 29 percent going to renewables, 20 percent to transit, 22 percent to energy efficiency and the remainder going to other programs. The Department of Energy, Treasury Department, Federal Transit Administration and Federal Railroad Administration distributed the funds through loans, loan guarantees, tax incentives and grants.
According to the report, the Recovery Act "was not only a historic action to help bring about a macroeconomic recovery, but it was also a dramatic investment in the future of the U.S. economy."
"The clean energy-related projects funded by ARRA help address a variety of market failures, including environmental and innovation market failures," the report added.

The program took effect following a year in which private employers lost 3.8 million jobs.
For DOE, this required expanding its mission from funding basic science to delivering economic growth. "I do think that DOE during the Obama administration not only adopted a clean energy focus, but an economic mission, and even a regional economic mission, all focused on clean energy," said Mark Muro, a senior fellow and policy director at the Brookings Institution's Metropolitan Policy Program.

CEA found that the clean energy programs in the stimulus supported 900,000 job-years between 2009 and 2015, with job-year defined as a full-time job held for one year. Since 2008, wind energy in the United States tripled in capacity, while solar energy expanded thirtyfold.
Under Recovery Act-funded programs, utilities installed thousands of smart meters, 800,000 homes were weatherized and more than 180 grants were awarded to clean energy manufacturing programs.

According to DOE's inaugural U.S. Energy and Employment Report released in March, 3.64 million Americans are employed in the traditional energy sector, with 600,000 now working in low-carbon technologies, and more than the 543,000 employed in mining and extraction. An additional 1.9 million Americans work in energy efficiency.

DOE's loan guarantee program also received a major boost under the stimulus and now has a portfolio of $30 billion in loans for large-scale energy production and manufacturing projects.
Despite several high-profile flameouts like the bankruptcy of solar manufacturer Solyndra, DOE boasted that the loan programs office has only posted 2.33 percent in losses as a percentage of total commitments as of September, yielding a portfolio more than 97 percent solvent.
DOE declined to comment on the record about the Recovery Act programs.

Numbers don't always tell the whole story

Some analysts were skeptical of the White House's favorable review of its own energy initiatives.
The jobs numbers come from a "macroeconomic multiplier" rather than a tally of actual employment, for example, and "include both direct, indirect, and induced jobs," according to the CEA report.

Direct jobs are the people hired to actually build wind turbines or install solar panels; indirect jobs are those created among their suppliers; and induced jobs are the additional waiters hired to feed workers near job sites.

But construction jobs go away once projects are built, along with many of the jobs that depend on them. And the value of these jobs — whether they are full or part time, how much they pay, whether they go to communities actually hurt by the recession — was left out of the job estimates, so verifying the actual impact of energy investments remains a difficult task.

"The fact that they haven't hung their hat on any number to my mind is very interesting," said Yeatman. "Their silence to me is telling."

Factors beyond the government's control may have played a bigger role than the stimulus in driving down the cost and increasing deployment of renewables. For solar power, China flooded the market with cheap polycrystalline silicon, the raw material in most photovoltaics, thereby driving down the cost of solar panels and making them more attractive for homeowners and utilities (ClimateWire, Sept. 29).

In addition, it's hard to distinguish what projects were already underway and what would not have happened without Recovery Act funding. This is particularly true for the high solvency rate that DOE claims for the loan guarantee program.

"It obscures some of the nuance," said Frank Rusco, director of the natural resources and environment team at the Government Accountability Office.

Loan guarantees are supposed to help innovative energy projects that would have a hard time getting affordable financing without a government backstop because the technology they are using is too new or the investment they need is too high.

The money doesn't actually come from the government except in some cases where DOE furnishes the credit subsidy cost, or the amount the loan guarantee costs the department to administer. The Recovery Act provided $2 billion to cover credit subsidy costs.

But the fact that so many projects in the portfolio are doing well raises the question of whether they needed government support in the first place. "The bar is not particularly high for innovation," Rusco said.

Clean energy a 'big job creator'

In addition, not all the projects in the loan guarantee portfolio are comparable. Some used the guarantees to build factories, while others used the program to build power plants that have guaranteed revenue streams in the form of power purchasing agreements from utilities, dramatically lowering the risk of the loan.
"It's a small loss if you look at the defaults compared to the total portfolio," Rusco said. "This is not a portfolio of loans that should be compared like that."

Much of the money under the Recovery Act has already been spent, but the incoming Trump administration will still have some say in its legacy.

"One of the decisions that the new Trump-led DOE is going to have to make is what to do with the Loan Programs Office," said Dan Reicher, the executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford University who led DOE's Office of Energy Efficiency and

Renewable Energy under President Clinton.

The Energy Department still has $40 billion in remaining authority for the loan guarantee program, but applications for new projects have dropped off.

Trump will also take office without a major crisis underway, so his administration would have more flexibility in how it targets its energy investments, but also less urgency. It's uncertain whether Trump would be able to pay for his infrastructure plan with just induced investment from tax breaks.
Though the jobs linked to the Recovery Act remain murky, clean energy is still a growing part of the economy, drawing more than $500 billion a year in investment, while employment in fossil fuels like coal is on the decline. Any new infrastructure policy should keep this in mind and work to accommodate more renewables, fuel-efficient cars and better-insulated homes, according to Reicher.

"From strictly an economic standpoint, we should remain focused on the broad suite of clean energy," Reicher said. "It's a big job creator."

ClimateWire is written and produced by the staff of E&E News. It is designed to provide comprehensive, daily coverage of all aspects of climate change issues. From international agreements on carbon emissions to alternative energy technologies to state and federal GHG programs, ClimateWire plugs readers into the information they need to stay abreast of this sprawling, complex issue.

Date Posted: 12/27/2016