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Surveying the States: Policy Strategies for Fostering Clean Energy-related Economic Development

March 23, 2017 by Jeffrey J. Cook

To date, no one source has collected all of the clean energy-related economic development policies that states have adopted to spur growth. This has made it difficult to answer this important question: what policies foster the most job development and offer the best return on investment? A recent National Renewable Energy Laboratory (NREL) report serves as a foundation to answer this question.

The report documents all of the policies states have adopted to drive clean energy-related economic development and documents three case studies (Tesla Gigafactory, the Pacific Northwest Manufacturing Partnership, and the Maryland Clean Energy Center) to explore the connection between economic development and clean energy policy. This analysis serves three ends: 1) it offers policymakers a clearer understanding of the different approaches that have been used to spur economic development; 2) it provides some perspective on what effect this state activity has on outcomes; and 3) it serves as a foundation to assess the net impact of clean energy policies on economic development.

To build an understanding of the policy environment across the states, the report documents all the existing state programs that support expanding existing and new clean energy manufacturing. The policy environment is composed of three pillars: recent legislative activity, financial incentives, and other policies.

The report identifies over 900 clean energy-related economic development policies across the states and each state had at least one policy in place. The top five states in terms of total policies included New York (42), Virginia (39), Oregon (36), California (35), and Maryland (33) (Figure 1).

Figure 1. Documented numbers of economic development policies in U.S. states

Illustrated map of united states

The report goes on to highlight some notable policies across each of the three pillars. With 585 polices in the baseline, financial incentives were the most common policy across the states. The report specifically calls out 27 incentives across 19 states related to clean energy industrial recruitment (Figure 2). These incentives range from tax incentives for job creation to loan programs to support startup enterprises.

Figure 2. States that offer at least one industry recruitment financial incentive for renewable or energy efficiency-related manufacturing

Illustrated map of United States

Other policy such as executive orders, administrative programs and other initiatives were the second most common policy in the baseline (188 policies). One innovative approach five states (Hawaii, Massachusetts, Maryland, New York, and Virginia) have used within this category is to adopt clean energy centers or technology incubators. The mission of these entities is to promote economic development through technology commercialization and business support services.[i]

Legislative activity was the third most frequent policy type and accounted for 138 policies in the baseline. Virginia, Oregon, and Colorado were the top three states in terms of enacted legislation. Financial incentives, workforce development, and research and development legislation were the most commonly enacted legislation across the states.

This policy environment illustrates that states have adopted a variety of clean energy policies to support economic development. The three case studies offer some perspective regarding how state clean energy policy decisions can influence economic development.

The Tesla Gigafactory case illustrates the direct role states can play in fostering economic development. The case outlines how the state of Nevada landed Tesla’s estimated $5 billion electric vehicle battery factory. Among other factors, the report found that the state’s $1.3 billion financial incentive package was critical in securing the facility. Over the life of the incentives, Nevada estimates that the facility will generate $20 billion in economic development.

The Pacific Northwest Manufacturing Partnership reveals a different pathway to support economic development. Here, the states of Oregon and Washington along with a variety of stakeholders established the partnership to capitalize on Pacific Northwest manufacturing opportunities. Among other strategies, the partnership is analyzing the market potential and regional benefit of commercializing cross-laminated timber.[ii] Oregon in particular has played an important role in lending credibility to the project and seed funding to its research activities. This partnership pathway offers a less costly approach to foster new manufacturing than the Tesla case.

The Maryland Clean Energy Center case describes a third pathway for fostering economic development, this time through a centralized, quasi-state agency focused on business development. The Maryland Clean Energy Center housed the Maryland Clean Energy Technology Incubator for three years. This program offered start-up companies access to an entrepreneur-in-residence and opportunities to collaborate with other entities in the Maryland technology incubator network. Though Maryland legislators established the agency, they did not appropriate funds in the process. The agency has struggled with financing in recent years and has not been able to maintain the incubator. Ultimately, this case illustrates an innovative pathway to drive economic development, while highlighting the importance of funding to achieve those priorities.

Challenges relating to funding for economic development priorities were not unique to the Maryland case. Rather, it was a common challenge across all three case studies. This relates back to the initial question in this blog relating to impact and more directly the interplay between policy, spending, and economic development. The report concludes by calling for future research to analyze the identified policies and their net return on investment. This information may be valuable to policymakers as they attempt to achieve economic development priorities cost effectively.

[i] For more information about these clean energy centers and their impact see: Tracking State Efforts to Foster Economic Development through Clean Energy Research and Development Agencies.

[ii] Cross laminated timber is a sustainable building material that can be used as a substitute for steel and concrete.

Tags: Policy