Happy new year, everyone!  If you haven't yet done the readers' prediction survey, please click here and do so, it'll take all of 30 seconds.  Lots of good responses so far...

So at midnight on the 31st, the U.S.'s $1/gallon biodiesel tax credit expired because the Senate couldn't get their act together to extend it.  Already, some biodiesel plants are shutting down, hoping for a legislative fix soon so they can restart.  But emphasis on "hoping".

My point isn't to defend subsidies or biodiesel, we've talked about those in other posts, and regular readers know my take on both is somewhat mixed.  No, my point is that if you're a lawmaker and you decide you DO want to incent the growth of an emerging industry by providing tax credits, the very WORST thing you can do is to set the timeframes short and then fail to re-up them in time.

We've talked a lot here about the project finance gap in cleantech, where traditional energy project financiers aren't willing to put money into "new" technologies.  And I put quote marks around "new", because some technologies that project finance remains leery of probably seem old hat by now to readers of this column.  But the traditional project finance model isn't designed to take on much risk at all.  And so it's tough to get project financiers to put capital into building out production capacity when the technology still is being tweaked, or when inputs aren't secure, or when demand isn't secure. 

So when someone wants to build a biodiesel plant, or a wind farm, etc., and they approach project financiers, a volatile incentive system is EXACTLY OPPOSITE of what you want if you want to encourage broad roll-out of a technology.  And yet in the U.S., Congress insists upon not only relatively short-term incentives that need to be renewed or else lapse, then they regularly fail to meet the deadlines for renewal!

Here's a chart of what such treatment of the Production Tax Credit has done to the U.S. wind industry, courtesy of the AWEA (via Cleantechnica):

Of course, the ARRA included an extension of the PTC -- for 3 years for wind, to the end of 2012.  If you're a project financier, when you're evaluating a wind project, do you have faith that Congress will re-up the incentive by that deadline so that there will be no gaps?

It's all good that we're providing loan guarantees, working on Green Energy Bank legislation, and all that.  But whether the incentives for clean technologies are to be heavy or light, the greatest sin that Congress regularly commits is to create massive instability in the market by working with relatively short timeframes (10 years is a much more appropriate timeframe for such things), and especially to have the default action be a lapse of incentives without official renewal, instead of a more reasonable design which would have a grace period where the default was to CONTINUE an incentive if Congress can't get their act together by the deadline.

Because they rarely seem to be able to do so.

Thank goodness there are almost no revenue-producing algal biodiesel producers out there to be hurt by this lapse, huh?  I kid.  But lest I be perceived as promoting one clean transportation solution over the others, let me also wrap up with this inspired piece of marketing for the Chevy Volt:

 

Enjoy!