To make energy green, remove red tape
Everyone loves infrastructure. Specifically, they love talking about infrastructure. Former President Trump had Infrastructure Week, which never quite arrived, and President Biden wants to Build Back Better — in theory, at least. Yet all this talk hasn’t become action. Sometimes it seems like “infrastructure” has become little more than a handy label politicians can slap on something they want to spend money on, such as when Sen. Kirsten Gillibrand (D-N.Y.) tweeted that “Paid leave is infrastructure. Childcare is infrastructure. Caregiving is infrastructure.”
Over the next month, the Senate will review several Biden administration infrastructure bills that would spend as much as $4.1 trillion. But money isn’t America’s biggest obstacle to building up clean infrastructure. An excess of governmental regulatory red tape is.
Consider, for example, the National Environmental Policy Act (NEPA). Passed in 1970, NEPA requires that an environmental impact analysis be conducted prior to the commencement of infrastructure projects. Between 2010 and 2016, the average time for project approval increased from 3.4 years to 5.2 years. Average wait times fell slightly during the Trump administration, but they remain high. Environmental impact statements have grown to hundreds of pages, as regulators try to ward off lawsuits by analyzing any and all conceivable impacts. What was originally meant to minimize environmental harms has become a roadblock to many kinds of critical infrastructure projects.
These delays impact all types of infrastructure, but increasingly the projects harmed are environmentally beneficial. Of projects currently undergoing the NEPA process at the Department of Energy, 42 percent are for clean energy, transmission or environmental conservation related projects, while only 15 percent are related to fossil fuels.
To the extent that infrastructure build-outs do require spending money, regulation can make that spending less effective by needlessly driving up costs. A prime example of this involves electric transmission. Annual spending on the electric transmission system by major U.S. utilities has more than doubled over the past decade. Evidence shows that allowing competitive bidding in the building and operation of transmission lines can substantially reduce these costs. One recent study by the Brattle Group found that the winning bids in competitive transmission projects were 40 percent below the initial cost estimate for the project.
Yet states are increasingly passing so-called “right of first refusal” laws, which allow only incumbent utilities to build transmission projects. Not only do these laws drive up costs for electric consumers, but in the case of some regional, interstate transmission projects, such regulation means that consumers in one state must pay for excessive spending by utilities in another state.
Tax codes also inhibit productive infrastructure. Big infrastructure projects are capital intensive almost by definition. A business spends money now hoping to profit later. But while ordinary business expenses are generally tax deductible, capital investments often can’t be deducted immediately, but rather must be deducted over a number of years. A dollar today is more valuable than a dollar five years from now, so this process makes investing in large projects less attractive.
Allowing businesses to fully expense the costs of infrastructure investments when they are made could substantially increase business appetite for new investment. It is therefore ironic, not to say counter-productive, that one option to pay for the Biden administration’s new infrastructure bill has been to roll back provisions in the 2017 tax reform that moved the country toward full expensing.
An infrastructure bill shouldn’t become an excuse to lavish money on favored, trendy topics. Rather, if the government is going to spend on infrastructure, it should get the most for its money by pairing this with regulatory reforms that encourage private sector investment and allow projects to be completed without waiting for the end of the world.
Despite what politicians would have us believe, building infrastructure that helps our economy and our environment requires more than just a congressional appropriation — it requires a regulatory environment that permits new activity. This, though, can be pursued without any new burdens on taxpayers, and it is a necessary step to enabling the infrastructure build-out envisaged by politicians on both sides of the aisle.
Josiah Neeley is director of Texas policy and resident senior fellow on energy at the R Street Institute.