Obama Woos the Corporate 1%

[1] You really can't make this stuff up. On February 11th, the Wall Street Journal reported that (sub. required):

The Obama administration is attempting to persuade U.S. corporations about the benefits of investing in renewable energy, in an effort to help the industry after a government grant program expired.

The Energy Department-led effort includes a planned March 13 meeting at which senior financial-firm executives and Energy Secretary Steven Chu would speak, documents viewed by The Wall Street Journal show. The 79 invitees include some of the largest companies in the U.S., from Exxon Mobil Corp. to Walt Disney Co., according to the documents.

Yes, crony capitalism at its best. Team Obama sings a populist tune for its cheerleaders on the political left. Most of the time, someone needs to stand up for the "99%" against the big, bad "1%". But, ahem, there are some exceptions. A big exception involves the much touted "green jobs agenda." Guess what? The "green jobs agenda" can really use some help from the Corporate 1%.

The existing tax subsidy regime for renewable energy development is dysfunctional. Team Obama needs cash from big U.S. businesses with big U.S. tax bills. Without cash from the Corporate 1%, renewable energy development will continue to limp along. Hopefully, the "most transparent administration" in history will release a transcript of the March 13 meeting. But we can be assured that the real "action" will occur behind the scenes. Crony capitalism at its best.

[2] Back in August 2011, I wrote a series of posts describing the relationship between tax subsidies and renewable energy development. See Part 1, Part 2, Part 3, Part 4. The political left wants to subsidize renewable energy through federal spending. The political right favors the magic of "tax expenditures" over direct outlays. Together, they devised a laughably flawed regime that provides tax credits for certain types of renewable energy.

Why is the regime laughably flawed? A quick summary of my August posts. I'm focused on wind and solar development, although the same principles apply in other contexts.

Congress wants more development of wind and solar projects. But generating electricity from wind and solar resources costs more than generating electricity from coal and natural gas ("bad" fossil fuels). Because wind and solar are "uneconomic," no rational actor would develop wind or solar projects without some kind of subsidy regime. Put another way, a rational consumer would not choose to purchase expensive, unsubsidized electricity from wind and solar projects.

There are various ways to subsidize energy development. For example, Congress could have passed a direct subsidy for electricity produced by wind and solar projects. The direct subsidy would have been, say, 1.0 cent per kilowatt hours of electricity produced by a "qualified" energy facility for a given number of years. The entire program could have been administered by the Energy Department ... which is, after all, responsible for our national energy policy. Under a direct subsidy regime, a wind or solar project would merit development if (a) sales of electricity to utilities or other unrelated customers, plus (b) the 1.0 cent/KwH subsidy from the Energy Department, exceeded the cost of debt and equity required to finance development. Nice and easy.

Instead of a direct subsidy, Congress enacted a complicated tax subsidy. Actually, a series of slightly different, complicated tax subsidies. For wind, Congress enacted a "production tax credit" or "PTC." For solar, Congress enacted an "investment tax credit" or "ITC." In addition, wind and solar property qualifies for accelerated tax depreciation. Suffice to say, a taxpayer must have positive income tax liability to use PTCs, ITCs and accelerated depreciation. (Unless extended, the PTC regime will expire on December 31, 2012, adding more complexity and uncertainty into the mix.)

Importantly, a taxpayer with positive tax liability cannot simply "purchase" tax credits. On the flip side, a developer without tax liability cannot "sell" tax credits or excess depreciation. Instead, taxpayers with cash and tax liability must invest cash (so-called "tax equity") into qualifying wind and solar projects.

In exchange for its financing commitment, a tax equity investor receives tax credits, accelerated depreciation and some cash until the project satisfies an agreed IRR "hurdle." After the IRR hurdle is satisfied, somewhere down the road, the tax equity or common equity/sponsor exercises a put or call to close the transaction. Under the put/call arrangement, the common equity/sponsor purchases the tax equity investor's position based on its residual value.

[3] And that's why the regime is laughably flawed. It is complex and impenetrable for most taxpayers and most tax advisors. Plus, the commitment of cash to a renewable energy development project is absolutely "non-core" to most corporate treasurers and CFOs. Meanwhile, administering the subsidy regime falls into the lap of the IRS. Why not administer energy subsidies through the Energy Department?

In practice, there are only 15-20 active participants in the tax equity market. The market is dominated by large national banks, some regional banks, and a few other taxpayers in the financial services business (GE; insurance companies).

Before the financial meltdown in 2008, tax equity yields ranged from 6-8% on an after-tax basis (10-12% on a pre-tax basis). Then the financial system flirted with Armageddon. All of a sudden, market facilitators (the banks and insurance companies and GE) began running tax losses. Without taxable income, facilitators didn't need tax credits, so the market effectively froze up. This didn't bode well for Team Obama's "green jobs agenda." So the administration's Congressional allies quietly created a program to bail out the developers. During 2010 and 2011, qualifying projects could elect to receive Treasury grants (so-called "1603 grants") in lieu of tax credits. The 1603 grant program permitted the industry to survive the turbulence of the Great Recession.

Time flies, and we're in 2012. The Treasury grant program has expired, and Congress recently declined to renew it. Renewable energy development again hinges on 15-20 banks and insurance companies. Because there is a massive supply/demand imbalance (more renewable energy developers than tax equity), tax equity yields have skyrocketed. Yields for reputable developers have jumped from the 6% range to the 12% range. Yields for marginal developers are in the 15-20% range.

[4] Now we come full circle. The tax equity market is dysfunctional, and would make an interesting study for an economics PhD dissertation. Plenty of corporate taxpayers outside the financial services business (think retail, domestic services) have (a) large U.S. tax bills, and (b) stockpiles of cash earning 1% or less in ultra-secure investments. But tax equity yields are running 12-20% after-tax.

As evidenced by Team Obama's pending meet-and-greet, many of those large corporate taxpayers are probably put off by the complexity of the tax subsidy regime. But many of them routinely invest in other tax credit schemes, including low-income housing tax credits. Team Obama loves to demonize big business and large corporate taxpayers. Can it persuade those "big bad corporations" to commit cash in support of Obama's "green jobs agenda"?

In the world of crony capitalism, anything can happen. It's always a good time when you're rolling in the Corporate 1%.

Inequality and U.S. Economic Hegemony

In my last two posts, I've discussed Beale's Law (see here and here). Beale's Law posits that pre-tax income inequality has an "inverse" relationship to top tax rates. Today's post explores the more complex reality underlying the increased economic inequality in the United States.

The Decline of U.S. Economic Hegemony

The political left has convinced itself that inequality of income and wealth is primarily a function of tax rates. The narrative is easy to promote through soundbite politics. It stokes our base emotions (envy) and offers a simple government remedy to economic inequality.

The left clings to this narrative for a several reasons. The narrative is simple and politically expedient. It offers an excuse for failed left-wing policy initiatives that were supposedly enacted to improve equality of opportunity. (If past initiatives have failed to address inequality, why should we trust the same policymakers to implement "new and improved" policies to address inequality?) Most important, the narrative permits left-wing politicians to bury their collective heads in the sand. A simple narrative that 'tax policy drives inequality' fails to acknowledge the decline of U.S. economic hegemony over the last 50 years.

During the second half of the 20th century, the United States had the world's largest, strongest and most stable economy. We had an educated workforce, a developed energy and transport infrastructure, and stable government institutions. Following World War II, we experienced an economic surge associated with the Baby Boom generation. We supported our major trading partners during a period of post-war economic redevelopment. Capital markets activity was largely domestic. Through the 1970s, we ran consistent trade surpluses. From an economic perspective, we were the 'only game in town.'

Fast forward to 2011. The U.S. is now a player on a crowded and competitive international stage. We have no structural advantage relative to our major trading partners (the EU, Canada, Japan and Australia). Developing countries have better educated workforces, and armies of low-skilled workers that cost less than their U.S. counterparts. We have no discernible energy policy, and our dependence on oil imports drives chronic trade deficits. Technology has diminished the economic significance of geography, while promoting the relevance of talent. Financial capital markets are globally integrated. Global capital flows to the most profitable opportunities.

With that historical context, we can isolate on the major causes of U.S. economic inequality:

- On a macro level, the U.S. has been dragged into intense economic competition with its major trading partners and developing economies. We are no longer the 'only game in town.'

- On a micro level, the low-skilled U.S. worker has become far less valuable than his or her counterpart in the mid-20th century. Developing economies have large pools of low-skilled workers, and multinational businesses can access those low-skilled workers at lower costs than U.S. workers.

- Conversely, the best educated and most talented U.S. entrepreneurs have become more valuable than their counterparts in the mid-20th century. Technology has concentrated returns to talent and genius.

- Moreover, the byzantine U.S. regulatory system has created a "lock out" effect. In large sectors of the U.S. economy, only the largest businesses can thrive. If a business requires an army of lawyers or lobbyists to navigate regulatory, commercial or tax issues, it qualifies. The individuals that climb to the top of the pyramid generate economic premiums by "locking out" competitors. In the mid-20th century, how many CEOs depended on armies of lawyers or lobbyists?

Acknowledging the truth about economic inequality requires us to take off the blinders. We aren't going back to a period of U.S. economic hegemony. We are required to compete in markets that are ruthlessly efficient. Our low-skilled workers are at an enormous competitive disadvantage, and will continue to lose ground relative to better educated and more talented peers. The wealth gap will probably get steeper before it flattens out again. We aren't going to reverse the long-term trend by increasing top tax rates on "millionaires and billionaires."

However, all is not bleak. Our country has an extraordinary tradition of innovation and resilience. We need to acknowledge the competitive challenges facing our nation, and coalesce around strategies to align educational opportunities with a knowledge-based economy. We need to re-boot policies and institutions that worked in the mid-20th century to reflect the challenges of the early-21st century. We need to be realists, but realism is not mutually exclusive with optimism.

Energy Tax Subsidies for "Fat Cats" (Part Four)

My fourth and final post on the U.S. energy sector. I'm finally getting around to the topic that motivated this series of posts: U.S. tax subsidies to encourage the development of renewable energy.

In my last post, I described a hypothetical wind farm development in Iowa. Wind and solar are currently "non-economic" without some type of government subsidization. In other words, the returns to an investor in a renewable energy project do not justify the risk associated with the investment.

In typical fashion, Congress decided to "solve" the economic obstacles to renewable energy development through the tax code. Investors in qualified renewable energy projects are entitled to two types of tax subsidies. The first type of tax subsidy involves tax credits linked to electricity generation by qualified facilities (wind farms, solar projects, etc.). The second type of tax subsidy involves accelerated tax depreciation for equipment deployed in qualified facilities.

As I described in my last post, the tax subsidies may convert an otherwise non-economic project into a project that will attract private financing.

In a logical world, we would assume that Congress would want to maximize the amount of private capital that would flow into renewable energy projects. After all, new renewable energy facilities require construction activities before COD (jobs), and operations/maintenance activities after COD (jobs) (jobs, jobs, jobs). In fact, there would be a sort-of multiplier effect; we would need to upgrade the nation's outdated transmission "grid" to accommodate more wind and solar power. Moreover, renewable energy provides obvious benefits by reducing pollution, improving air quality, etc.

Unfortunately, Congress isn't subject to the constraints of a logical world. Instead of providing broad eligibility to use credits (and depreciation) against taxable income, Congress effectively limited participation to corporate taxpayers. By limiting participation to corporate taxpayers, Congress kept individual investors (taxpayers) out of the market. This decision may have been predicated on a political judgment that uber-wealthy individuals would create "blowback" by using energy tax subsidies to shelter income. However, it starved the renewable energy developers of one source of capital following the 2007 financial meltdown (as discussed below).

Let's get back to my Iowa wind-farm development. Our developer friend needs $100 million, for a project that is not economic unless the developer can "monetize" the tax subsidies available to the project. The developer cannot reach out to individuals; only corporations can use the tax subsidies in practice. Which corporations are providing "tax equity" to these projects?

There are currently 15 tax equity investors active in renewable energy development. The list is a "who's who" of TARP recipients. Bank of America, JP Morgan, GE Capital, Citi, Wells Fargo, Northern Trust. In addition, at least one insurance company is participating in the sector (MetLife). The only non-financial institution on the list is Google, which has recently entered the sector with a couple high-profile investments.

As you can see, most "tax equity" for renewable energy is provided by financial institutions (banks and, to a lesser extent, insurance companies). Financial institutions are logical participants in the sector. They generate steady taxable income from U.S. sources, and thus can offset U.S. tax liabilities with tax subsidies from renewable energy projects. They are also in the business of underwriting loans to borrowers, i.e., evaluating the quality of a borrower's income stream in determining whether to advance cash to the borrower.

Unfortunately, Congress built the tax subsidies for renewable energy with Wall Street in mind. During the "boom boom" years of the real estate bubble, financial institutions were flush with profits and taxable income, and they surged into the renewable development space. The surge of capital pushed down the cost of "tax equity" into a range of 6-7%, promoting development. As we all know, the real estate bubble burst with devastating consequences on the economy at large, and concentrated pain within the banking sector. Financial institutions updated their business models to reflect lower profits and lower taxable income (or tax losses). The surge of capital into the renewable energy sector became a trickle and then a drought. Under current market conditions, the cost of "tax equity" has climbed into a range of 10-15% (depending on type of project, among other things).

I keep expecting other corporate taxpayers to join the party. In fact, the reluctance of non-financial institutions to commit "tax equity" to renewable energy projects leaves me scratching my head. (Again, the mad geniuses at Google are a notable exception.) I understand that industrial and technology and service-oriented businesses do not have the same underwriting experience as the large banks. However, many of these companies have large cash stockpiles, and "tax equity" investors are seeing pre-tax returns of 20-25%. Industry sources tell me that, notwithstanding the economics, CFOs get hung up on the fact that "tax equity" investments are non-core activities.

Why has Google decided to be a trailblazer, where others dare not tread? I don't have a good theory. I'm surprised that other large corporate taxpayers are not taking advantage of the rich "tax equity" yields to invest in the space. I'm guessing that the marketing advantages for "going green and socially responsible" would tend to outweigh the benefit of the tax subsidies.

So where does that leave our wind farm developer? Maybe Google will be interested; more likely, the developer will join the line of developers seeking capital from the TARP recipients.

Where does that leave us as electricity consumers (ratepayers)? No surprise here. The cost of renewable energy development has increased, and utilities pass through costs to consumers. We'll be paying higher electricity costs as utilities source more electricity from (higher cost) renewable facilities. Unless other corporate taxpayers start participating in the "tax equity" market, electricity consumers (ratepayers) and taxpayers will pitch in to repair the balance sheets of the financial institutions participating in the market. But you probably won't see this story in the New York Times.

Energy Subsidies for "Fat Cats" (Part Three)

My third post on the U.S. renewable energy sector. I'm finally getting to the tax policy angle, where the "fat cats" on Wall Street are enjoying the good times, again. [I originally intended to finish this off in three posts. I realized that it will take four.]

As I described in my last post, "traditional" power plants burn coal and natural gas to satisfy most of our electricity demand. In the past decade, policymakers have begun pushing the development of "renewable" energy resources (primarily wind and solar) through a carrot and stick approach. The "carrot" involves tax subsidies for the development of wind and solar generation facilities. The "stick" involves a government mandate, often labelled a renewable portfolio standard ("RPS"), that requires utilities to source a fraction of their electricity from renewables. In the U.S., various states have enacted RPSs with various degrees of "teeth," but there is no national standard.

I'm focusing on the "carrot," but a quick observation on the "stick." Regulated utilities pass along costs to their customers. If a utility pays higher costs to source higher-cost "renewable" energy, then utility ratepayers (me, you, your kids, your grandma, your landlord, your employer, your local mall) will see the increased costs on their electric bills. Ultimately, higher utility costs are borne by individuals, directly or indirectly. Public Utility Commissions ("PUCs") exist to "protect" ratepayers from higher costs. Because renewable energy is still higher cost than energy from fossil fuels, PUCs will serve as a natural "check" on demand for renewables.

Back to the "carrot." Congress has enacted a set of tax subsidies to encourage renewable energy development. If you've done any interstate driving lately, you've probably seen "wind farms" (clusters of wind turbines on towers) popping up like dandelions. Those wind farms, and solar generation facilities currently under development, could not get off the ground without tax subsidies.

So why can't renewable energy developers get their projects into commercial operation without tax subsidies? Because an investment in renewables is non-economic under current market conditions. By non-economic, I mean that an unsubsidized renewable energy project would have negative risk-adjusted returns to its investors. For example, assume a wind farm or solar generation facility costs $10 million to develop. Based on current technology costs, financing costs and electricity rates, the investment might only yield a 2% average return over its operating life. But an investor can get a risk-free 3% return by investing in 30-year Treasuries. No rational investor would invest $10 million in a highly risky start-up venture (a wind farm or solar generation facility) with lower expected returns (2%) than a risk-free return (3%). [Note that 2% is a hypothetical number for easy discussion purposes.]

As I discussed in my last post, policymakers could tackle this issue using one of two approaches. The first approach would involve an across-the-board increase in electricity rates. For example, Congress could impose a carbon tax, which would increase utility costs for coal and natural gas. This would increase rates for electricity from traditional power plants (because the cost of coal and natural gas are passed through to electricity consumers). In turn, utilities could pay higher rates for renewable energy without causing "green rate shock" to electricity consumers.

Congress has rejected this approach for political reasons (higher electricity rates are politically unpopular; and higher costs for coal will decrease investment and union jobs in the coal mining industry). Instead, Congress has enacted tax subsidies for renewable energy development. The tax subsidies, when added to prevailing electricity rates, are sufficient to motivate investors to allocate capital to renewable energy projects.

The tax subsidies historically included tax credits and accelerated depreciation. This is where things get tricky and interesting. I've been talking about "tax subsidies" very loosely. Let's get into the anatomy of a deal.

So how do developers make these deals work?

Let's say you are a wind developer. You have identified a strip of windy farmland in Iowa, and you want to lease the land and install a series of towers and wind turbines. Of course, the farmer in question probably doesn't need much electricity; you'll need some infrastructure (converters and transmission cables) to connect your generation facility to the regional "grid" and transmit the electrons to Des Moines or Omaha. On the cost side of the ledger, you have (i) cost of land, (ii) cost of equipment (wind turbines, converters, hardware and integrated software), (iii) cost of infrastructure (towers, transmission), (iv) cost of financing, and (v) "soft costs" (attorneys, engineers, consultants and accountants necessary to get permits, conduct environmental studies, project wind patterns, draft leases, arrange financing, and pay the bills). Let's assume the total cost, from the planning phase to commercial operation, is $100 million.

How about revenues?

You've identified a Midwestern utility that is willing to sign a long-term power purchase agreement ("PPA") and pay slightly above-market prices for the electricity from your windfarm. They'll take all the electricity you can generate, but the amount of electricity generated depends on the technology (the efficiency of the wind turbine) and the wind itself. If the wind blows more than expected, the project will generate more electricity, more revenue and more earnings for its owners. If the wind blows less than expected, the project will generate less electricity, less revenue and less earnings for its owners. Ultimately, you know that you'll have a revenue stream from the project, but you can't predict the operating cash flows with precision (because they depend on wind flows).

To recap: you need $100 million to get your project past its commercial operation date ("COD"). You have a long-term PPA, which is expected to generate sufficient revenues over time to generate an average 5% cash yield on the project. (For example, the owner will receive $5 million in net cash from the project annually, measured in today's dollars.) That yield may be higher, or it may be lower, depending on how much the wind blows after COD.

Where do you get the $100 million?

You probably don't have that cash lying under your mattress. You can't borrow from a bank, because a bank is not comfortable with your credit profile (a developer with no assets). You need equity from somewhere. But as noted, the cash yield on your risky new wind farm (5%) is not attractive relative to a risk-free yield (3%).

Our developer friend needs a dose of "tax equity." Remember, Congress has chosen to subsidize renewable energy development through tax credits and accelerated depreciation. As a developer, you don't have sufficient taxable income to absorb the tax credits and depreciation from the project. However, plenty of large corporate taxpayers have U.S. taxable income, i.e., "tax appetite" that would permit them to reduce their own tax liabilities by tax credits and depreciation from the project. Some of these large corporate taxpayers are even willing to participate in the renewable energy space, despite the risks. Never fear, "tax equity" may be here!

Why is "tax equity" willing to participate in a deal that a "normal" investor would not touch?

A normal investor may not be interested in a risky start-up business that yields 2% more than a risk-free return. However, a "tax equity" investor can use the credits and depreciation from the project to offset taxes that it would otherwise pay to federal and state tax authorities. The decrease in cash-tax liability is economically equivalent to an increase in operating cash flow. For example, if the project generates $5 million in tax credits and $20 million in depreciation expense in Year 1, the effective yield for that year would be 18% ($5 million operating cash flow, plus $5 million in tax credits that save $5 million in taxes, plus $8 million in tax savings from depreciation expense ($20 million times 40% assumed tax rate)).

Who is actually participating as "tax equity" in renewable energy deals?

Stay tuned for my next post.

Energy Subsidies for "Fat Cats" (Part Two)

This is the second of four posts discussing the tax subsidies for renewable energy development that have been captured by large financial institutions (and Google!).

A quick overview of the energy sector, from “traditional” electricity generation to renewables:

We are a nation of gadget junkies, and our appliances, computers, TVs, cell phones, pads, pods and more essential infrastructure needs (subways, hospitals, refrigerators) are powered by electricity. We satisfy most of that electricity demand with supply from “traditional” electrical generation facilities. Traditional power plants mainly run on fossil fuels -- coal and natural gas -- which are abundant and cheap. Unfortunately, burning coal results in a parade of horribles (smog, soot, acid rain, air toxins, and greenhouse gas emissions). Natural gas is cleaner, but still a greenhouse gas. Finally, nuclear energy, although a “clean” alternative to fossil fuels, has always been controversial (and even more so following the tsunami in Japan).

Unlike fossil fuels, which are abundant in the United States but ultimately finite, “alternative” sources of energy are renewable. Our primary sources of “renewable” energy include hydro, solar, wind and biomass. Hydroelectric power is relatively cheap, but derived from rivers and dams, which limits generation capacity. Sunlight and wind are free and abundant in some places, but the technology required to convert sunlight and wind into electricity is expensive. Biomass generation technology is cheaper than solar/wind, but utility-scale development is limited to areas where the underlying fuel supply is abundant.

The policy dilemma is to formulate a coherent energy policy that balances the costs and benefits of “traditional” energy (coal, natural gas and nuclear), with the costs and benefits of “renewable” energy (primarily solar and wind). Throw politics into the mix, and it’s easier said than done. However, most everyone can agree that the cost of energy has a huge impact on our individual and collective standard of living. It has an equally dramatic impact on the competitiveness of U.S. manufacturers and exporters.

Thus, low-cost energy is better than high-cost energy. Although a simple concept, execution is tricky, because it is not always clear how to define the “cost” of electricity generation.

Using current technology, coal and natural gas are the cheapest sources of energy for electrical generation. They are both abundant natural resources with high energy content relative to cost of extraction, and they can both be used to provide “baseload” power without the “intermittency” problems of wind and solar power. A recent EIA report estimated the average cost of new conventional coal generation at 9.5 cents/kWh; conventional (combined cycle) natural gas at 6.6 cents/kWh; advanced nuclear at 11.4 cents/kWh; wind at 9.7 cents/kWh; solar photovoltaic at 21.1 cents/kWh; biomass at 11.3 cents/kWh; and hydro at 8.6 cents/kWh.

Unfortunately, burning coal and natural gas has negative side-effects (air pollution, smog, acid rain, greenhouse gas emissions, etc). These negative side-effects are not reflected in the price of the underlying commodities. Economists refer to these hidden costs (negative side-effects) as “externalities.” Basically, an externality is a negative consequence of economic activity that is not included in the price for that activity. If the “externality” were included in the price of the economic activity (“internalized”), the cost of the activity would increase, decreasing the amount of the activity.

Back to the energy sector. Although coal and natural gas are the cheapest sources of energy for electrical generation, they are “artificially” cheap. The cost of producing energy from coal and natural gas does not reflect the negative side-effects (the “externalities”). If those costs were “internalized” into the cost of the commodities, renewable energy generation would become more competitive relative to traditional fossil fuels. (Based on our existing “electrical grid” infrastructure, renewable energy also presents an “intermittency” problem. For example, the wind tends to blow more at night, when electricity demand is lower than “peak” business hours. This “intermittency” problem is an externality associated with renewable energy.)

Policymakers could “internalize” the costs of fossil fuels by imposing a tax on coal and natural gas (a “carbon” tax). However, a carbon tax would increase energy costs for residential and industrial consumers (the cost of fuel used to generate electricity would increase). Moreover, it would be impossible to ensure that the proceeds of a carbon tax would be used to defray the societal costs of traditional energy generation. Liberal politicians that advocate for such a tax would be tempted to direct the tax revenues to the liberal policy objective du jour.

In any case, it appears unlikely that Congress will enact a carbon tax while I am still alive to consume electricity. Instead, Congress has tackled the energy-cost differential from the opposite direction. Rather than increasing the cost of fossil fuels, Congress has attempted to decrease the cost of renewable energy through government subsidies. Among other subsidies, Congress has attempted to stimulate renewable energy development through tax subsidies.

In my third post on this topic, I’ll discuss the anatomy of a renewable energy deal. In my fourth post, I'll move to the tax policy angle. As foreshadowed in my first post, the tax subsidies for renewable energy development have primarily flowed to large financial institutions. Perversely, the consequence has been less renewable energy development, at a higher cost, imposing a secondary level of costs on energy consumers. So taxpayers are stuck with higher taxes, energy consumers (for the most part taxpayers) are paying higher costs for energy, while large financial institutions (and Google!) are extracting tax subsidies as intermediaries. The entire fiasco could only have been devised by our political "leaders" in Washington D.C.