The Clean Energy Deployment Administration (CEDA)
S. 1462
The American Clean Energy Leadership Act of 2009 (S.1462), which passed out of the Senate Energy and Natural Resources Committee on June 17, creates a new federal entity called the Clean Energy Deployment Administration (CEDA). This new agency would promote the domestic development and deployment of clean energy technologies by establishing a revolving fund that will underwrite loans to provide affordable financing for a range of clean energy-related technologies. As presently drafted by the Senate, the fund's proposed structure raises a number of serious concerns that must be addressed before Congress moves forward. To ensure that energy technologies that have the greatest impact on reducing global warming pollution, are the most cost-effective, and put people back to work the fastest will receive priority for financial assistance under CEDA, the following provisions must be changed:
- unlimited loan guarantees to costly technologies without being subject to the appropriations process
- the lack of restrictions on the amount of financial support that can go to the most costly, most risky, and least sustainable energy technologies
- the lack of any metric for global warming pollution, which is needed to ensure that the most cost-effective, environmentally sound technologies are pursued first
All of these concerns would put the U.S. taxpayer at excessive risk and could adversely impact the competitiveness of truly renewable resources.
The budget proposed by the Obama administration on February 1, 2010, moves exactly in that direction—providing $36 billion in new loan guarantees to nuclear power on top of the $18.5 billion already appropriated for new nuclear reactors, and only $3-5 billion in loan guarantees to all energy efficiency and renewable energy technologies combined.
As written by the Senate, CEDA offers:
Unlimited Loan Guarantees
The lack of effective limits on the amount of loan guarantees that can given to eligible technologies is most significant as it eliminates a critical tool of government oversight and leave the taxpayer on the hook for billions of dollars in risky loans. The Senate plan does this by exempting CEDA from the Federal Credit Reform Act (FCRA). This would allow CEDA to use the full faith and credit of the U.S. government to issue unlimited loan guarantees without going through the normal checks and balances of the appropriations process. Given the costly nature of many of the technologies eligible for CEDA loan guarantees, as well as their limited or poor credit history, it would be fiscally irresponsible for Congress to exempt the proposed CEDA from FCRA and allow potentially unlimited loan guarantees to be issued at the expense of the U.S. taxpayer.
No Restrictions on Funding Amount or Project Type
Although the Senate bill would require that the “cost of the loan” or the estimated cost to tax payers including risk of default be paid up front in order to get a loan guarantee, there is no certainty that the risk exposure to the taxpayer will be accurately calculated and reflected in the subsidy cost because the process for making that determination is not transparent and is poorly understood. Both the Government Accountability Office and the Congressional Budget Office have concluded that calculating these costs is extremely difficult[1] making the potential taxpayer exposure astronomical. Moreover, the Senate bill would allow a combination of both the borrower and the taxpayers to pay any subsidy cost, meaning that U.S. taxpayers could have even more to lose if and when projects default.
It is also problematic that the Senate bill contains no requirements ensuring the diversity of projects that could receive these taxpayer-backed loan guarantees. Eligible projects include non-renewable technologies like coal-to-liquids, coal with carbon capture and storage (CCS), and nuclear power. These technologies are all extremely costly, which could enable them to get the majority of available credit support under the program. The lack of a limit on the amount of financial assistance that could be provided to any one technology in the Senate bill would increase the likelihood that the CEDA project portfolio will be disproportionately weighted in favor of costly, non-renewable energy technologies at the expense of less expensive, cleaner and more scalable technologies.
No Global Warming Pollution Metric
Finally, the Senate bill also lacks a metric for global warming pollution, which would ensure that the fund achieves the greatest emissions reductions per dollar invested. With access to potentially unlimited loan guarantees and no cost-effective emissions reduction metric, increased electricity demand could be filled by non-renewable, costly sources of energy, further eroding the competitive position of renewable resources.
Any congressionally authorized "clean energy bank" must comply with FCRA and be subject to the congressional oversight process so that the taxpayer is not exposed to extreme financial risk. The Senate's American Clean Energy Leadership Act of 2009 lacks this crucial protection as well as a cap for individual technologies. CEDA must have a limit on the amount of financial assistance that can go to any one technology so that a small number of large, costly projects like nuclear power and CCS do not crowd out assistance for renewable and energy efficiency technologies. Finally, CEDA must contain a metric for global warming pollution to determine project funding priorities based on the amount of heat-trapping emissions reduced per dollar invested in the shortest amount of time.
[1] GAO report at http://www.gao.gov/new.items/d07339r.pdf, CBO report at http://www.cbo.gov/ftpdocs/82xx/doc8206/s1321.pdf
