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May 24, 2011 

Senate Proposal for Clean Energy Bank Needs Significant Improvement to Protect Taxpayers, Science Group Says

Senate Committee Markup Expected This Thursday

WASHINGTON (May 24, 2011)—A proposal by Sen. Jeff Bingaman (D-N.M.) for a federal clean energy financing bank would expose U.S. taxpayers to excessive risk, eliminate proper congressional oversight, and fail to guard against undue industry and Wall Street influence, according to the Union of Concerned Scientists (UCS). The proposal, called the “Clean Energy Financing Act of 2011,” is one of several bills slated to be marked up on Thursday, May 26, by the Senate Energy and Natural Resources Committee. Sen. Bingaman’s legislation is similar to language included in a bill passed in 2009 by the same committee as part of the American Clean Energy Leadership Act.

The proposed bank, the Clean Energy Deployment Administration (CEDA), would offer a range of federally backed financing options—including direct loans, letters of credit, and loan guarantees—for energy production, transmission and storage projects, and other technologies that would reduce global warming emissions and energy consumption. Renewable energy technologies, nuclear reactors, and coal carbon capture and storage projects all would qualify for assistance.

“A properly designed federal clean energy bank could help reduce financial risks associated with deploying innovative clean energy technologies, but a new loan guarantee program should not be used to provide unlimited financial support for mature, high-risk technologies with multibillion dollar price tags,” said Ellen Vancko, manager of UCS’s nuclear energy and climate change project.

UCS urges the Senate to modify Sen. Bingaman’s CEDA proposal to protect taxpayers and ensure that funding targets truly innovative clean energy technologies that have the potential to reduce the most global warming emissions at the lowest possible cost.

Specifically, the Senate should:

  • Cap the amount of credit support that the bank can issue to limit taxpayer exposure;
  • Subject CEDA to the Federal Credit Reform Act to ensure ongoing congressional oversight and budget authority;
  • Remove provisions that would give loan guarantee applicants the ability to challenge the government’s estimated value of recovery in the event of default; and
  • Ensure that any outside professional advisors retained by the bank are subject to strong conflict of interest requirements.

These modifications would reduce the overall risk of default to taxpayers and promote more cost-effective and environmentally acceptable alternatives.

The rationale behind CEDA is to support the commercialization of new innovative technologies, but the nuclear industry sees it as a vehicle to encourage construction of conventional reactors by lowering the cost of debt. The Nuclear Energy Institute, the lobbying arm of the nuclear power industry, has called CEDA “a permanent financing platform for new nuclear reactors.”

“Given the ongoing nuclear disaster at Fukushima,” said Vancko, “Congress should focus on what we need to do to address serious shortcomings in nuclear plant safety and security rather than find new and creative ways to provide the industry with even more subsidies than it already enjoys. A recent UCS report, “Nuclear Power: Still Not Viable Without Subsidies,” found that the industry has been benefitting from a vast array of subsidies since its inception more than 50 years ago.

The Senate’s CEDA proposal is flawed because it favors larger capital-intensive projects over many cost-effective, low-carbon options, according to UCS. This is because the cost of debt is the biggest hurdle for large, costly projects, and CEDA would reduce the cost of debt by shifting the financial risk of these projects onto the taxpayer. There would be no restrictions on the size of the projects, or a limit on the amount of credit support that CEDA could provide.

In 2009, the Congressional Budget Office estimated that CEDA could provide $130 billion in loan guarantees to large nuclear and fossil fuel energy projects based on current applications alone. This would create an incentive for companies to use the program to finance large, risky projects with a higher return on investment instead of new, innovative technologies, or low-cost, low-risk energy efficiency projects.

The Senate’s new version of CEDA contains even fewer taxpayer protections than earlier proposals, while granting loan guarantee applicants the right to challenge the government’s assessment of a project’s value of recovery in the event of a default. That would give large project developers even greater leverage over the process.

“The Senate should adopt responsible, common-sense provisions to protect taxpayers and underwrite the development of a broad range of clean, cost-effective energy technologies,” Vancko said. “Without these protections, the financial risk to taxpayers could be astronomical.”

 

The Union of Concerned Scientists puts rigorous, independent science to work to solve our planet's most pressing problems. Joining with citizens across the country, we combine technical analysis and effective advocacy to create innovative, practical solutions for a healthy, safe, and sustainable future.

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