Federal Energy Efficiency Tax Credits: A Policy That Sounds Better Than It Is

Posted on 05-04-2018

By Nick McClure and Huiru (Ruth) Kang

Energy efficiency has been a national policy priority in the United States for decades. Since the 1970s, politicians of diverse ideological perspectives have advanced policies aimed at reducing energy use. For more than the last decade, the U.S. has attempted to increase household efficiency through the Federal tax code. The Energy Policy Act of 2005 introduced a tax credit for energy efficient home improvements, such as roofs and insulation, and appliances, such as water heaters and heating and cooling systems. With some adjustments over the years, the credit has been extended six times, most recently in the Bipartisan Budget Act of 2018, and has provided approximately $12.7 billion to households since 2008. 

Policy makers, interest groups, and the public alike view the benefits of investing in energy efficiency as an axiom: more is always better. Environmentalists view energy efficiency investment as a means to reduce greenhouse gas emissions. National security strategists portray efficiency investment as pathway to energy independence. Households view see it as way to lower heating and lighting bills. The views are so widely held that the most recent extension of the tax credit—and an estimated $500 million—seemingly didn’t garner debate among policy makers or the attention of the media. Issues related to greenhouse gas emissions, energy independence, and household-level decision making could all warrant government involvement, yet the current tax credit fails to deliver its ascribed benefits.

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The Impact of the Trump Administration's Solar Tariff

Posted on 04-19-2018

By Huiru (Ruth) Kang 

In 2012, the Obama administration imposed tariffs on solar cells and panels imported from China. The move did not lead to a resurgence of American solar manufacturing. Instead, by 2017, 25 US manufacturers went out of business, only two solar cell and panel manufacturers remained viable, while eight others produced panels using imported cells. At the same time, imports grew by nearly 500% from 2012 to 2016. To protect domestic manufacturers, President Trump pledges to levy tariffs on all solar cell and panel imports from nearly every country in the world. Will the new tariff revive solar panel manufacturers in the US so that they could compete globally? Specifically, will the US manufacturers be able to compete with Chinese peers, which produce 60% of the global solar cells?

 

The answer is no for both questions. The US cannot revive its solar panel manufacturing by trying to protect firms competing against Chinese peers, as global manufacturers have been struggling with already thin margins. China’s production cost was $0.50 per watt in late 2012, and U.S. manufacturers were not competitive then. The production cost for Chinese manufacturers was estimated to fall to $0.36 per watt by the end of 2017. Will the new tariffs close the price gap between Chinese and the US manufacturers? Probably not, at least in the short term. It is difficult to predict how the new tariff would change the solar panel manufacturing in the long term due to policy uncertainty.  A couple of manufacturers already announced their plans to ramp up production, but new capacity takes time. In fact, as the new tariffs are reduced and expire over four years, investors may be reluctant to bet big to fund new production facilities now in the US. The impact of the tariff in the first year is estimated to be between $0.10 to $0.12 per watt, and will decrease to $0.04 to $0.05 per watt in the fourth year. 

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The Cost of Reliable Electricity

Posted on 04-13-2018

By Nick McClure 

In order to provide the on-demand electricity on which U.S. consumers depend, regional grid operators must balance electricity supply and demand by coordinating numerous power plants to produce electricity when demand is high and stop production when demand subsides. U.S. electricity demand in the summer and winter can be more than 40% greater than demand in the spring or fall and severe demand spikes occur on particularly hot or cold days. The fluctuations mean that some plants that are needed to meet peak demand must sit idle when demand is lower. Of course, idle power plants cannot generate revenue from electricity production, which may prevent operators from investing in new plants and lead them to prematurely retire existing plants. To ensure operators build and maintain enough capacity to meet peak demand, grid coordinators pay operators for simply having capacity available, whether it is used or not.  

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Will China Import Liquefied Natural Gas from West Virginia?

Posted on 03-14-2018

By Huiru (Ruth) Kang

In November, China Energy Investment Corporation signed a non-binding agreement with West Virginia. The agreement laid out a plan to invest $84 billion in shale gas development, underground storage of natural gas liquids and derivatives, and chemical manufacturing in the state over the next 20 years. Since signing the agreement, the Chinese state-owned enterprise has made no further announcements, nor have they explicitly expressed their rationale for these investments. Given the China’s increasing demand for natural gas, it is likely that these investments are intended to facilitate imports of natural gas from Appalachia.

 

Three factors could promote imports of liquefied natural gas(LNG)produced in West Virginia to China. First, China’s rising demand for natural gas necessitates increased LNG imports. China is expected to continue to import LNG due to a massive government program pushing to heat millions of homes and power thousands of factories with natural gas instead of coal. Further, the International Energy Agency predicts that China's natural gas demand will triple by 2040. Meanwhile, China Energy is eager to ramp up investment in gas-fired electricity generation. As China’s top coal miner and the largest power utility, China Energy remains under pressure to clean up its energy mix. In fact, the possibility of imports from West Virginia has been ostensibly confirmed by Chinese media reports, which emphasize imports as a main driver for China Energy’s planned investments.

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Shale gas royalties in Pennsylvania: How much goes to local or state residents?

Posted on 02-19-2018

By Associate Professor Jeremy G. Weber

Pennsylvania has quickly become the second largest producer of natural gas in the United States. If it were a country, it would rank about sixth in the world in terms of production. Unlike elsewhere in the world, where governments own the right to the gas in the ground, production revenues in Pennsylvania and other U.S. states are split between energy companies and (mostly) private owners of gas rights. 

How natural gas production affects local economies depends on whether gas-right owners live near where production occurs. Suppose that the price of natural gas doubles but drilling and production do not change. Revenues to gas-right owners, referred to as royalties, will also double but have no effect on the local economy hosting the wells if the owners live elsewhere. If, instead, many owners reside locally, their incomes will rise and lead to greater spending on restaurants, home renovations, and the like, all of which will have a multiplier effect on local income. This multiplier effect has been documented by myself and others in a research paper of the Federal Reserve Bank of Kansas City, which found that each $1 in royalties creates an additional $0.50 in the county where it is received.

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About the Blog

The GSPIA Energy and Environment blog provides commentary and analysis that furthers understanding of E&E issues of public interest. Its primary contributors are GSPIA faculty and students.

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Editors

Max Harleman, Managing Editor
Max is a PhD student at GSPIA. His research focuses on the governance of energy projects and their associated economic and environmental impacts on communities near development.

Questions about the blog should be directed to Max at MRH105@pitt.edu

Jeremy Weber, Faculty Editor
Jeremy is an associate professor at GSPIA. His research cuts across energy, agriculture, the environment, and well-being. He teaches classes in quantitative methods and energy and environmental policy.

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