July 5, 2017

TAX WHAT YOU DON'T WANT AND FORCE INNOVATION:

Here's something Americans can actually agree on (Sam Ori, July 5, 2017, MarketWatch)


Whether you are looking at oil, natural gas or the electricity grid, an energy system whose costs and benefits were once concentrated in just a few regions of the country has transformed into one whose presence is much more widely distributed. This democratization of energy production has already had important impacts.

First, America's new energy landscape has been a big benefit for local economies. A recent paper co-authored by my colleague Michael Greenstone, for example, found that communities in the regions where shale-oil and gas drilling takes place profit to the tune of $1,900 per household, annually. Those benefits include a 6% increase in average income driven by wage growth and royalty payments, a 6% increase in housing prices, and a 10% increase in employment.

This finding aligns with a number of analyses that have explored the local impact of renewable energy investment. While the build-out of wind generation has been geographically diverse, more than 70% of wind farms are located in low-income, rural areas throughout the West and Midwest. The $100 billion that has poured into wind generation over the past decade has injected new funding into public finances in these communities and provided a much-needed source of additional income to farmers at a time of low commodity prices.

Yet, as important as the economic impacts have been, the biggest implication of these changes to the U.S. energy system could be their effect on our politics. For much of the past 50 years, U.S. energy politics have been driven by regional interests -- from the oil patch and coal country in particular. But there are signs this is beginning to change as energy production becomes less concentrated and more distributed.

In 2015, for example, a bill that secured historic five-year extensions of tax credits for wind and solar power while also opening global markets to shale-oil drillers received strong support from both parties. This kind of compromise on energy policy would likely not have been possible if Republicans felt unsafe supporting strong renewable subsidies or if Democrats were unable to support a policy that led to more shale drilling. More recently, after a draft White House budget showed it would gut the Energy Department's renewables office by 70%, six Republican senators from across the country called on President Trump to maintain funding for the agency.

Given the expected growth in renewable energy investment and shale drilling in the coming years, this could be the beginning of a much broader alignment on energy policy. As communities in states across the country find that they have a common set of economic interests and policy objectives, they will become an increasingly potent force with skin in the game on big issues. And while policies focused more specifically on climate change are likely to remain more divisive, it should not be lost on anyone that many of the fuels at the forefront of this revolution--wind, solar and natural gas--offer important environmental and climate benefits.

The incentives for cooperation are aligning across states as geographically and politically diverse as, for example, Texas and California around renewables and Pennsylvania and North Dakota around natural gas. At least on energy policy, we may be about to become a country that's much more united than divided.

Posted by at July 5, 2017 6:02 AM

  

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