Creating a 21st century electrical grid is finally a priority and the possibilities seem enormous. Despite the grand potential, though, many of the most important decisions will involve painstaking regulatory and tax reform rather than sweeping mandates. What’s politically intriguing about these reforms is that at least in principle they ought to appeal across ideological lines: Conservatives like less regulation and more rational tax policy, and progressives like removing barriers to renewable energy, so this seems like fertile territory for odd bedfellows.
In that vein I recommend two pieces, both adapted from reports from the conservative Manhattan Institute.
The first is "Growing NYC’s Grid," an excellent piece in the New York Post from Hope Cohen of MI’s Center for Rethinking Development. It notes a simple barrier to expanding the city’s grid: transformers, the facilities that take high-voltage juice from transmission lines and convert it to lower-voltage juice for distribution lines, can only be built on industrially zoned property, which is increasingly rare and expensive in urban areas.
But today’s transformers are smaller, quieter, and cleaner than they were when zoning regs were passed, and can be integrated into the urban landscape. (There’s one in the base of 7 World Trade Center.) A simple regulatory change — allowing transformers in commercially zoned areas — can boost the reliability and efficiency of NYC’s power. Imagine how many more rules and laws there are like this across the country.
For more on this, see Cohen’s full report, "The Neighborly Substation: Electricity, Zoning, and Urban Design."
Secondly, see economist Gilbert Metcalf with the (somewhat misleadingly titled) "Building A Renewable Bridge To Nowhere." His point is that the biggest current federal instrument supporting carbon-free energy is the tax code, but while the tax code favors several forms of renewable generation, it’s actually quite unfriendly to investments in the grid:
How, precisely, does the tax code treat investments in electric transmission and distribution? According to my estimates, they face the highest effective tax rates of all the forms of energy capital that I studied. With effective rates of 34% to 39%, transmission and distribution lines are at the bottom of the pecking order.
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Many of the elements are in place to support a transition to a green energy system that promotes economic growth. But the backbone of the system is weak. More R&D and careful scrutiny of state and federal policies that govern new grid investments are essential, but not as essential as a tax code that offers the right financial incentives.
I doubt Metcalf would support this, but here’s a proposal: Instead of a revenue-neutral tax, how about something framed as a revenue-neutral tax cut? That is, cut taxes on grid investments and make up the revenue by boosting taxes on carbon-intensive investments. Who’s with me?
Metcalf’s full report is here: “Taxing Energy in the United States: Which Fuels Does the Tax Code Favor?“
The broader point of all this is that there ought to be tons and tons of regulatory and tax reforms that accomplish the dual goals of reducing Heavy-Handed Government Interference in Markets and removing barriers to clean power.
Perhaps someone should put together a bipartisan working group and issue a white paper! I’m told that’s how all positive social change begins.
