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Clean-energy subsidies are vanishing. What should replace them?

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Clean tech has enjoyed quite the party these past few years. Solar, wind, plug-in vehicles — they’ve all benefited from billions of dollars in subsidies from Congress, through various energy and stimulus bills. As a result, many industries, like solar, have taken lengthy strides.

But that party’s about to shut down. As an extensive new report (pdf) out Wednesday details, clean-energy subsidies are disappearing fast, as the stimulus winds down and various laws and tax credits expire. Back in 2009, clean tech got $44.3 billion in federal support. By 2014, that will have shrunk to just $11.1 billion. Here’s a chart showing the drop-off (ARRA is the acronym for the stimulus bill):

The new report, co-authored by researchers from the Brookings Institution, the Breakthrough Institute, and the World Resources Institute, is the first to examine in detail which policies are actually expiring and when. All told, Congress has created more than 92 different programs dealing with clean tech — everything from production tax credits for wind power to advanced manufacturing credits to loan guarantees for nuclear power. And, by 2014, 70 percent of these programs will have vanished.

The authors argue that letting all of these programs expire could cause the clean tech sector to “go bust,” as budding energy technologies like solar, wind, and even next-generation nuclear plants are currently facing pressure from ultra-cheap natural gas and from subsidized competitors in China.

“This would be the wrong time to step away from clean tech,” says the Breakthrough Institute’s Jesse Jenkins, one of the co-authors of the report. “Many of these industries are only just starting to mature.” (By some calculations, for instance, rooftop solar power is getting close to competing with fossil fuels in a few retail electricity markets.)

But, Jenkins notes, that doesn’t mean all 92 of these programs should simply be extended as is. For one, that likely won’t fly politically — the report argues that “public tolerance” for endless clean-energy subsidies “is limited,” citing earlier research. But also, Jenkins argues, it’s not good policy on the merits to keep forking money over to solar and wind and geothermal producers without a real sense of larger aims. “The goal shouldn’t be to simply subsidize industries endlessly, it should be to improve innovation so that the subsidies can phase out over time,” he explains.

To that end, the report suggests that Congress should rejigger its clean-energy subsidies in several ways. First, it should focus heavily on research and development. And second, the subsidies that are geared toward deploying new technologies — the credits and policies that help wind turbines sprout up and nuclear reactors get built — should be structured so that they reward improvements in performance. Solar power shouldn’t just get proppd up no matter what. It should get money in such a way that manufacturers have incentives to keep putting out more efficient panels that get steadily cheaper.

There are plenty of ideas for doing this. Nations like Germany and Denmark offer “feed-in tariffs” for wind and solar power that get smaller over time — which forces the technology to keep improving in order to stay profitable. Japan, meanwhile, has its Top Runner program that sets efficiency standards for appliances that are based on the best-performing leaders in the market. That is, the most efficient firms set the pace for the rest of the industry. A similar program could, in theory, be set up for clean energy sources. (See here for a detailed rundown of Japan’s Top Runner program.)

The ultimate goal of these policies, the authors note, is to push clean tech so that it can eventually stand on its own and compete with older, more established fossil fuels.

The report, titled “Beyond Boom & Bust,” doesn’t, however, set a specific dollar amount for how much the U.S. government should be actually spend on renewable energy, electric vehicles, battery manufacturing, and other clean tech. “Our goal was more to start a conversation on this issue,” says Letha Tawney of the World Resources Institute, another one of the report’s co-authors. “Not just about how to deploy clean tech in the U.S., but how to build healthy, robust industries that can compete with the rest of the world.”

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