The Daily Dish
April 10, 2024
Against the Wind – Public Policy and Offshore Power
Climate change policy remains front and center in the Biden Administration. Yet merely wanting a cleaner energy portfolio won’t make it a reality. Neither, as it turns out, is it sufficient to simply open up an endless funnel of taxpayer-provided tax credits. Instead, a more comprehensive policy approach is required.
Take offshore wind power (OSW) as an example. In a new insight, Dan Goldbeck and I look at the obstacles to the deployment of OSW. OSW is generally reliable and, for example, does not suffer the same difficulties meeting peak winter demand in New England as solar power generation does. Moreover, OSW allows for clean energy generation near densely populated areas where high costs and little available real estate make other wind and solar ventures prohibitively expensive.
So, OSW should be a easy lift, right? Alas, no. A recent spate of bad headlines followed when power contracts were canceled for major wind projects in New York, Massachusetts, and New Jersey, and plans for a large OSW farm in Maryland were paused. It turns out that one can trace a lot of the delays and cancellations to higher-than-expected startup costs – the operating costs remain highly competitive – and that better policy can reduce those fixed costs of installing OSW.
A key way to reduce the fixed costs of OSW is to speed up the permitting process. As the insight notes:
Perhaps the most notable example of policy reform in the permitting process has been the “FAST-41” framework – emanating from Title 41 of the Fixing America’s Surface Transportation Act (FAST Act). This seeks to make the timetables of permit applications more transparent and standardized in length while also facilitating greater coordination among relevant agencies in the process. While FAST-41 has helped in streamlining the permitting process for some renewable energy projects, the data suggest that agencies have not applied its reforms as rigorously to OSW projects, thus leaving them needlessly languishing in regulatory limbo.
But permitting is not the only issue. Another major problem is the Jones Act – a longstanding evil that crops up in many circumstances. It requires that all goods transported by water between U.S. ports be carried on ships constructed in the United States, fly the U.S. flag, are owned by U.S. citizens, and are crewed by U.S. citizens. The Jones Act is particularly a challenge for OSW, which will need vessels for ferrying supplies, constructing turbines, and transporting workers. One vessel is being built in Texas, but not in time for the first project expected to use it. Studies have found that the Jones Act increases the cost of installation by 30 percent.
There is also an additional layer of construction permitting required and the complexity of domestic content regulations. OSW projects on the Pacific and the Atlantic coasts must obtain Environmental Protection Agency air permits for their construction and operational vessel activities, but other offshore energy operations are exempt. As for the domestic content tax credits, each is worth 10 percent of a project’s cost but requires that an OSW project be constructed using U.S. iron and steel from a U.S.-based tower facility. Unfortunately, there is no such facility.
Finally, there is better coordination needed for connecting OSW generators to the overall transmission grid, building the necessary ports and other infrastructure, and dealing with local environmental issues.
The bottom line is quite simple. It is great to want cleaner energy and the Biden Administration is willing to greatly subsidize it. But as the case study of OSW reveals, there is a lot more policy coordination required to make the cleaner energy feasible.
Fact of the Day
As of April 3, the Fed’s assets stood at $7.4 trillion.
