As Federal Funding Dries Up, States May Play Greater Clean Tech Role

Federal investment in clean energy technology is poised to plummet in the coming years, threatening to shrink a sector that has grown quickly in the past decade, but hasn’t yet weaned itself from subsidies, according to a study by scholars from The Brookings Institution and the World Resources and Breakthrough institutes.

And that decreasing investment in wind, solar and other renewable energy industries could put more responsibility on states for developing the industries.  

“What’s happening in the federal government has tremendous effects on the state level,” says Mark Muro, policy director for the Brookings metropolitan policy program and lead author of the study released this week.  “That throws more focus on the role of states and regions in financing the growth of the sector.” 

Renewable electricity generation doubled during the past five years, while prices for the technology fell. And from 2007 to 2010 clean technology sectors added more than 70,000 jobs to a struggling economy, the report says.  

The growth was spurred largely by huge increases in federal support, much of it stimulus dollars. Spending in 2009 reached $44.3 billion, just above the total spent during the previous seven years combined.

But without Congressional action, federal clean tech spending will fall to just $11 billion by 2014, a drop-off that has already begun. Total federal spending is expected to reach just $16.1 billion in 2012, close to half of its level the previous year. Meanwhile, 70 percent of federal clean energy policies enacted in 2009 are set to expire in the next two years, according to the researchers’ analysis of 92 federal policies and programs.     

This comes as the surging natural gas industry poses increasingly tough competition for renewables in the energy market. 

“The combination of these forces could see recent years of clean tech boom go bust,” the report notes. But at the same time, researchers say, the shift gives policymakers a fresh chance to craft more efficient policies.

“Standard subsidies, the way they’ve been operating, are not affordable or impactful,” says Muro. “States can help fill in the gap by making the money go further.” 

A report released by energy reseachers in January found that clean energy funds in more than 20 states raise about $500 million each year. That money has helped finance more than 72,000 projects that generate renewable energy or increase efficiency.  

Most of those programs are found in the Northeast and along the West Coast. California, for instance, invested more than $360 million in clean energy in 2010. 

And last year in Connecticut, Governor Dan Malloy signed off on legislation creating the country’s first fully-funded “Green Bank” – a quasi-public financing authority aiming to provide low-cost capital for clean technology projects without straining the state budget. The Hawaii Legislature this session is debating a bill that would set up a similar program. 

Though states lack the resources to replace all the money once spent at the federal level, says Muro, they are well-positioned to foster the growth of clean energy technology, partly because states can leverage universities for research. “This needs to be an urgent time of experimentation,” he says.