Renewable energy: The government piggy-bank

by Shelley DuBois, reporter


FORTUNE -- If the government truly wants America to go green, it's going to have to shell out to support the nascent but important sector of our economy. Green jobs and renewable energy were boldly funded in the stimulus bill, yet whenever Congress and the Obama administration need to scare up capital to fund some other program, they chip away at the initial $37 billion allocated for climate and energy-related efforts.

This week, President Obama signed a bill that gives $26 billion to states that were facing brutal cuts in funding for public sector jobs. Ten billion dollars will go to school districts, protecting an estimated 300,000 teacher jobs. The remaining $16 billion will go to fund Medicaid-supported jobs.

The government will get some of that $26 billion back by raising taxes on US-based multi-national companies and paring back the food stamp funding program. And a Department of Energy loan guarantee program will lose $1.5 billion out of its original $6 billion budget.

This DOE loan program was created to promote capital spending on green projects with the intended benefit of creating jobs. Congress earmarked $6 billion for the program as part of the American Recovery and Reinvestment Act of 2009.

The loan program has finalized loan guarantees for two projects to date -- one to develop a wind power plant in Hawaii, and the other to build an energy storage plant in New York. The DOE may soon be supporting green jobs into the thousands, as it has issued conditional loan guarantees to nuclear, solar and geothermal development plans under the program.

But losing $1.5 billion will significantly reduce the budget for these loan guarantees -- and not for the first time. The program is already down $2 billion thanks to last year's Cash for Clunkers program. The government helped pay for its auto stimulus package from funds earmarked for the loan program. The latest cuts bring the program's total stimulus funding to just $2.5 billion.

Gambling away the future

It's easy to make the case that saving 300,000 teacher jobs is more dire than funding experimental programs that don't exist yet. But it's distressing that the choices we face in capital allocation come down to educating our future generations or funding energy infrastructure programs that could reduce their dependence on fossil fuels. Borrowing from our future to pay for today -- it's something our government is all too familiar with, but it's a deal the country shouldn't be forced to make.

The government often props up sectors of the economy it deems important -- it created Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500), and the Federal Housing Administration to facilitate homeownership, via loan and securities guarantees for millions of Americans. Based on the troubles those agencies are facing, it's obvious the government can overextend itself and needs to be wary of where it allocates capital. But despite those troubles, the housing market is a many trillion-dollar economy.

Putting $6 billion towards an environmental safety net carries the promise of compound interest: a (relatively) small amount of money now could reap huge rewards in the decades to come. But every day we wait to make the investment could cost us huge amounts far down the road.

Will this DOE loan guarantee program help pull the country out of the crisis in the long term, or will it end up being a waste of money? Unless the government stops gutting it every time it needs to shore up the books, we may never know. To top of page

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