Why 2012 Will Be a Bad Year for Renewable Energy

The eyes of the environmental community were on the South African city of Durban over the past two weeks, as diplomats from more than 190 countries met for the annual U.N. climate-change summit. The talks ran 36 hours longer than scheduled ? so late that host South Africa had to arrange for bigger flights to accommodate departing diplomats, but in the end representatives managed to come to an agreement, sort of. Essentially nations decided to begin the process of negotiating a bigger and better climate treaty ? one that could eventually encompass all major emitters, including big developing nations like China and India ? while keeping the Kyoto Protocol alive for at least a few more years. There's no certainty that Durban will actually result in a real climate treaty (virtually nothing agreed to at the summit was binding), but it's at least a little bit better than nothing.

More than 7,000 miles away in Washington, however, another negotiation is underway that could be much more important to the climate than the U.N. summit ? and the end isn't likely to be as positive. U.S. wind and solar companies are panicking over the murky future of federal support for renewable energy. Generous tax credits and subsidies ? especially since the 2009 stimulus ? have helped the U.S. renewable industry thrive, with wind power alone growing 37% annually over the past four years. But much of that government aid is set to expire at the end of the year, and if Congress doesn't act ? which seems increasingly unlikely in these politically dysfunctional days ? the U.S. renewable-energy industry could suffer a major crash in the years ahead. That could have knock-on effects both for the fight against global warming and for the slowly recovering job market. "Wind-turbine manufacturing has been a bright spot for the U.S. over the past few years," said Denise Bode, CEO of the American Wind Energy Association (AWEA), in a conference call with reporters. "But we're putting those jobs at risk." (See the top 10 green trends of 2011.)

Renewable-energy projects are eligible for the Production Tax Credit (PTC), which provides a credit of 2.2 cents per kilowatt-hour of energy produced in a wind farm or solar-utility project, for the first 10 years of operation. That money has driven rising investment in renewable energy over the past several years. IHS Emerging Energy Research estimates that the PTC ? which has been in place since 2005 ? has supported an average of 5.6 gigawatts of annual growth in wind energy, which has helped the industry reach more than 43 gigawatts of installed capacity.

That's been good for the climate as renewable energy displaces coal or natural gas, but it's also been good for American manufacturing. There are more than 400 facilities in 43 states producing parts for wind turbines, and today 60% of a turbine's value originates from the U.S., up from 25% before the PTC was enacted in 2005. "These are good manufacturing jobs," said John Purcell, the vice president of wind energy for Leeco Steel. "That's a great job to have in today's times."

But the PTC for wind is set to expire at the end of 2012. A study by Navigant Consulting ? admittedly commissioned by the AWEA ? predicts that if that happens, investment in the industry will drop from $15.6 billion in 2012 to $5.5 billion in 2013, while jobs will fall from 78,000 to 41,000. New wind installation would fall to 2 gigawatts from the 8 gigawatts of installation that is projected to occur if the PTC is renewed. It's little wonder that groups as disparate as the United Steelworkers and the National Association of Manufacturers have endorsed the renewal of the PTC. "Time is of the essence," says Terry Royer, president of Winergy Drive Systems. (Watch TIME's video "Climate Central: Philadelphia's Hot New Normal.")

The PTC for solar isn't scheduled to expire until 2016, so that industry has a bit more breathing room. But it faces an additional challenge: the end of the 1603 program. Before the recession, companies took advantage of the credits provided for funding renewable-energy projects by applying them against their tax bill. Banks ? unsurprisingly in the boom years ? were major customers for those credits. But a funny thing happens during a recession: companies stop making a profit, which also means they stop paying much in taxes ? so they have little use for tax credits. As the tax-equity market dried up, so did financing for renewable energy ? especially solar projects, which already receive less investment than wind.

Enter the 1603 program, which was also enacted as part of the 2009 stimulus. Instead of receiving a credit against tax bills, companies that invested in renewable energy could simply get cash straight from the federal government, bypassing the tax-equity problem. As a result, investment in renewables soared ? last year 1603 paid out $3.3 billion, helping the solar industry employ some 100,000 people. But if 1603 isn't renewed ? and with House Republicans against anything that smells of "stimulus," it's not looking good ? the U.S. solar industry could lose nearly 37,000 jobs and miss out on as much as 2 gigawatts of additional installation. "The next year is going to be a Darwinian one for the solar industry," says Ed Fenster, CEO of SunRun, a solar-financing company. "The expiration of 1603 means that smaller companies are going to have a difficult time getting access to capital."

Conservatives protest that the 1603 program ? which has cost $9.6 billion through 2011, nearly three times what Congress had expected ? is unaffordable in an era of tight budgets. There's also the argument that government aid should focus more on supporting breakthrough-energy technologies, instead of spending money year after year enabling sources of renewable energy that are unable to survive without government aid. But the cost of wind and solar are dropping rapidly, finally putting renewable energy in a position to compete in the marketplace ? as long as the certainty of government aid doesn't disappear. The history of U.S. clean-energy policy has been one of fits and starts, with the renewable industry rising and then crashing when subsidies expire. As the climate crisis worsens ? and countries barely seem to be able to do anything about it on the international stage ? now's not the time to pull the rug out from under American renewables.

Read about the history of green energy.

Read about Sweden's new energy source.

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