This past week, one of our very talented Columbia graduates, P. Anthony Arias, wrote an interesting blog post on a promising piece of legislation on renewable energy finance in the U.S. Congress. The title of the proposed legislation is the Master Limited Partnerships (MLP) Parity Act, and it is supposed to remove an artificial financial advantage that fossil fuels are currently enjoying.
To summarize Anthony’s post, an MLP is a corporate structure that can be publicly traded. It is not taxed for revenue, its investors are not taxed for revenue, and liability is not limited. Sound good? Yes, until one figures that it is only available to traditional energy forms such: natural gas, oil, and coal.
Policies such as MLPs are one reason why it is extremely dangerous to judge the economic potential of renewables based on past experience. In a sense, renewables are fighting with one hand tied behind the back. Many current energy policies, which were enacted thanks to relentless lobbying by the energy industry, artificially inflate the expected returns from investment to fossil fuels. Given these policies, renewable energy is relatively less attractive as an investment than it would be on a level playing field.
The MLP Parity Act is an example of an economically rational and, just maybe, politically feasible policy. Financial policies that promote investment in societally dangerous forms of energy make no sense whatsoever, except in a political economy model where politicians give rents to greedy special interests in exchange for campaign contributions and other forms of political support.