Regulatory overhaul is key to the clean energy transition

Regulatory overhaul is key to the clean energy transition
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As Congress contemplates clean energy subsidies and standards, we should first ask why clean energy deployment can’t already keep up with burgeoning demand. The answer is simple to identify but difficult to remedy: archaic regulation. Regulatory solutions aren’t as sexy as grandiose public spending, but for those motivated by results over optics, it’s time to redefine clean energy leadership. 

The infrastructure deal relies on a controversial budgetary approach to clean energy, but America needs unified regulatory reform. The deal, as it currently stands, includes a one-time injection of $73 billion for clean energy and electric transmission. To put this in perspective, utilities spent over a quarter trillion on transmission alone over the past decade. The problem isn’t the private sector’s unwillingness to spend, but a regulatory structure that deters private investment and insulates incumbent utilities from competition. For example, Congress should be asking why transmission regulation is a “protection racket” that rewards utilities for spending excessively while deterring innovative, low-cost alternatives that would save consumers billions and accelerate decarbonization

While Congress debates how to spend tens of billions of energy dollars, it must tee up the regulatory reforms that will create hundreds of billions of dollars in net benefits over the next decade. Encouragingly, proposed amendments to the infrastructure package explored modest project siting, permitting and competitive procurement provisions. But they’re not nearly enough to address the main impediments to an affordable and reliable clean transition.  

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Like a kinked hose, pressure is magnifying across the clean energy supply chain, ranging from critical minerals production to energy project development. Subsidies and mandates create artificial pressure and shift costs to taxpayers or consumers. Policymakers should relieve the supply kinks to drive clean energy deployment, stimulate innovation and improve our deteriorating fiscal outlook. 

Clean energy does not have a demand problem. Aggressive state policies plus a dynamic corporate sustainability movement have set a pace to get the majority of our power from emission-free resources within a decade. The only question is whether our regulatory apparatus will permit it — figuratively and literally. 

For starters, a slew of regulatory flaws in electricity market rules and governance insulate incumbent power plants from clean, competitive new entrants. A report by Americans for a Clean Energy Grid outlines the imperative of overhauling grid regulation, noting that the current system is "causing a massive backlog and delay in the construction of new power projects." New projects backlogged in the grid interconnection process already equal 77 percent of the total capacity of all existing power plants. 

Meanwhile, the environmental case for reforming environmental permitting has reached a tipping point. The headliner is the National Environmental Policy Act (NEPA), in which reviews were supposed to take less than a year and now exceed five years. This delays some projects and deters others outright by driving up costs and legal risk. Paradoxically, NEPA is now afflicting clean projects the most: 42 percent of active NEPA projects at the Department of Energy are for clean energy, transmission or environmental conservation, compared to just 15 percent related to fossil fuel projects. 

Congress is beginning to hear from experts that outmoded regulation is the clean transition’s main foe. For example, in recent congressional testimony, Democratic witness Rob Gramlich, president of Grid Strategies, noted that there “is no lack of private capital, private sector interest, or private sector ability to build transmission,” but the holdup is flaws in regulatory planning, cost allocation and permitting. Beyond transmission, the private sector’s environmental appetite is already $17 trillion, or one-third of U.S. assets under management, and rising rapidly. 

Today’s regulatory state is the antithesis of the Wall Street refrain on sustainable finance: “speed to market.” Forcing taxpayers and consumers to pay for what the private sector wants to finance but can’t build is impractical and unjust. Aside from research and development assistance, clean energy leadership must divorce itself from spending others’ money. Congressional efforts should instead prioritize unleashing the might of the strongest economic force in history: American free enterprise.  

Devin Hartman is director of energy and environmental policy at the R Street Institute.