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Ex-CIA Chief: Feed-in Tariffs a Secret for Success

Woolsey says profitable clean-energy policy could repower Michigan jobs

September 22, 2009 | By Glenn Puit
Great Lakes Bulletin News Service

  Ex-CIA Director James Woolsey says feed-in tariffs could reduce our dependence on foreign oil and spark a clean-energy manufacturing boom in Michigan.

A former director of the Central Intelligence Agency says that Michigan should adopt an innovative clean-energy policy that would create tens of thousands of new jobs in the state and bolster the country’s national security.

The policy, called “feed-in tariffs,” is already extraordinarily popular in Europe, and is just now being adopted in several parts of the United States and Canada, including Gainesboro, Fla., Vermont, and Ontario. The programs establish rates—or tariffs—that utilities would pay to clean-energy entrepreneurs who generate electricity from their own smaller-scale solar panels, wind turbines, or other renewable sources and feed it onto the grid.

The tariffs paid by the utilities would be set high enough to guarantee a profit to the entrepreneurs, who typically are homeowners, small business owners, or farmers.

The move, according to R. James Woolsey, Jr., would make Michigan a leader in the emerging clean-energy manufacturing sector by triggering a big, new, in-state market for solar panels and other renewable energy devices, as well as a new army of retailers and installers—jobs that could not be exported. At the same time, Mr. Woolsey said, it would help America break its addiction to fossil fuels.

Mr. Woolsey, who headed the C.I.A. during the Clinton presidency, from 1993 to 1995, is widely regarded as one of the nation’s foremost experts on both foreign policy and energy.

“I think there is a lot of potential for new local jobs in this,” Mr. Woolsey said. “We need one big state to join Vermont in implementing feed-in tariffs. Vermont is already doing this, and Ontario already has it. If one big state were to implement feed-in tariffs, such as a Michigan, California, or New York, then it would really get them on the map (for new jobs.)”

A number of European countries, including Germany, now have feed-in tariff programs. The policy has triggered an immense “green rush” of new jobs on that continent, particularly in Germany, one of the tariff program’s earliest, most aggressive adopters, where the clean-energy industry is now that country’s second-largest employer, after the auto industry.

Several state legislators, led by Michigan state Representative Lee Gonzales (D-Flint), are pushing feed-in tariffs in the Michigan House of Representatives, but their proposal, first introduced by former state lawmaker Kathleen Law, is stalled in the House Energy and Technology Committee, chaired by state Representative Jeff Mayes (D-Bay City).

Meanwhile, two months ago, Consumers Energy rolled out its own modest feed-in tariff pilot program, which quickly sold out its limited number of available slots to interested customers, indicating that a statewide tariff program could be extraordinarily popular in Michigan.

Mr. Woolsey emphasized that he sees feed-in tariffs as a perfect fit for Michigan—a job producer in a state with a huge but idle manufacturing base and the nation’s highest unemployment rate.

He spoke at length recently with the Great Lakes Bulletin News Service about feed-in tariffs.

Great Lakes Bulletin News Service: What prompted your interest in and passion for energy policy?

Mr. Woolsey: It was in 1973, and I was general counsel for the Senate Armed Services Committee. I was driving to work in Washington D.C., and I was late for a hearing in which I had to question witnesses. I was late because I was stuck in a gas line. The Saudis had cut off our oil and we were trying to keep Israel from being destroyed by its neighbors. I’m sitting in this gas line, and I got teed off that morning. I’ve been teed off ever since.

You’ve said you support making it easy for the average individual to generate their own renewable energy, and you envision solar panels on schools and barns across America. What do you think is the best way, in general, to proceed with a strategy for energy generation in America?

Mr. Woolsey: The path not taken: applying “small is beautiful” to energy. You are not going to have a coal-fired power plant on your roof or the roof of your local school, but you can have solar panels and wind turbines.

How do you explain feed-in tariffs to people not familiar with the topic?

Mr. Woolsey: It’s a simple requirement to utilities that they buy power from small to medium-sized renewable electricity generators for a period of time, say 20 years, at a fixed price. The price is fixed at the cost of generating today plus about a 7 or 8 percent profit, just like what the utilities make. You spread the costs around to all ratepayers, and the impact on their rates is very small. Germany has done it successfully, and they have six times the solar power of the U.S. with roughly a third of the population.

The added cost for that solar, wind, and biomass costs the average German one euro a month. This is not a political issue in Germany. No one fights about it. In the U.S. the main reason the utilities squawk about it is because they don’t want to lose control. They want everything centralized under them.

What do you say to critics who contend feed-in tariffs are unfair, that they are a subsidy that forces one ratepayer to subsidize the profits of another ratepayer, and that they will require taxpayer financing?

Mr. Woolsey: I think it’s kind of a made-up argument. Pretty much every American energy system has a huge subsidy to it. Ask the critics how they feel about taxpayers paying for insurance and loan guarantee costs for nuclear power plants. Not everyone is getting power from a nuclear power plant, but we all pay for it without everyone getting a benefit from it.

One respected expert on oil believes the oil business in the U.S., even today, is subsidized to the tune of $250 billion a year, including the radical costs of pollutants it puts out, i.e., the people who get cancer from aromatics, benzene, toluene, and all the medical costs that are attributed to oil refining and use of oil products.

If you go back in history, the subsidies for the railroads were absolutely huge and they came from the federal government, and they didn’t benefit the entire country at first. We’ve been doing this for a long time. It’s also important to remember that there is not a free market for energy. It’s a myth in the U.S. that there’s a free market for energy. It’s not even close.

You’ve told us that you see the private sector playing a huge role in financing the construction of wind turbines and solar panels for individuals once feed-in tariffs are in place. You do not envision using government money to finance solar panels and wind turbines on a small scale?

Mr. Woolsey: Let’s say you have a farmer with a big barn, he wants to put solar panels on it, but he doesn’t want to shell out the tens of thousands in upfront costs. If you have a feed-in tariff, you can go to the local utility and tell them, “I’m going to put in a megawatt of solar. Give me a contract.”

Then you go to your local bank with the contract, and the bank says, “Fine, looks like a good contract. Here, we’ll loan you up to two thirds of the contract.” The government hasn’t appropriated any money. All you’ve got is the contract that the law requires the utility to sign.

That’s the reason why, in Germany, there is one building in Munich that produces more solar power, two megawatts, than the entire state of Florida or the entire state of Texas. The feed-in tariff works really well with financing the process. You don’t use tax revenues, and you don’t have to wait for people to come up with the big money for big solar plants. The huge loans for huge projects are hard to come by, but a bank could see a local contract with a local utility and finance it.

You obviously are very concerned about climate change. How do you convey the message that climate change is a serious issue to those who question whether it’s real?

Mr. Woolsey: If you go at it on climate change grounds alone, it’s tough. I was testifying before a House Finance Committee on climate change and national security, and a conservative Republican Congressman was questioning me.

I noted that this was important to address climate change, for independence from oil, and it would also help protect us from terrorist attacks, and he said, “Well, if you do it for those reasons, then that’s fine.”

I’ve also seen religious leaders say that we need to address climate change because we are not taking good care of God’s garden. That’s fine, too.

GLBNS: How do you feel about the climate change legislation that just emerged from the U.S. House of Representatives?

It’s a real shame. The coal lobbyists did very well on the House bill. They slowed down any transition away from coal by 15 years or so; a lot of the focus is on moving towards clean coal. Also, the main device for moving towards renewables is a renewable portfolio standard, and that’s not going to help at all in moving away from coal and toward natural gas. I’ve made my peace with natural gas. It’s less than half as bad as coal...and you can turn it on and off.

The combination of having a big transmission grid, big utilities on a large scale, the renewable energy requirements, and all of the various tweaks that were put into the House bill to help coal—they’ve pushed us away from small and medium-scale generation, and it’s a bad approach.

Glenn Puit is a policy specialist with the Michigan Land Use Institute. Reach him at glenn@mlui.org.

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