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Mario Loyola: Make Federal Red Tape Part of the Debt-Ceiling Fight

Congress can save the American people trillions and boost the economy by easing infrastructure permitting. Last week, the House passed a bill that would raise the debt ceiling in exchange for more than $4 trillion in deficit cuts over a decade. It would repeal much of the hundreds of billions in renewable-energy subsidies from last year's Inflation Reduction Act.

President Biden continues to insist that the debt ceiling is not negotiable. But deficit-reduction measures have been part of debt-ceiling negotiations for decades, and Biden has himself negotiated such compromises many times. Indeed, the very reason the debt limit exists is to give Congress a way to rein in federal spending. That's especially true with a spending spree that is contributing to high inflation.

One point of contention has been renewable-energy subsidies amounting to perhaps $3,000 for every American just in the last two years. Supporters argue that the subsidies are needed to make renewables cost-competitive with fossil energy. But there is an even more important reason that energy infrastructure doesn't get built fast enough or cheaply enough: Endless red tape and uncertainty create prohibitive risks for private investment. If it weren't for those risks, many such projects would show a positive return on investment and wouldn't need federal subsidies at all, particularly with solar and wind becoming increasingly cost-competitive.

Virtually all the major studies on pathways to net-zero electricity ignore the impact of permitting costs on investment decisions. Those costs, which include both the costs of the permit application and the risk of delay, have yet to be reliably quantified but could be in the hundreds of billions of dollars for America's energy sector.

Hence, even the trillion dollars in infrastructure subsidies that Congress has appropriated under President Biden may not be enough to overcome the risks investors face, and we will soon be told that more is needed. Congress has an obligation to stop wasting taxpayers' money on problems that it created and only it can fix.

The rest of the world is waking up to the urgent need for permitting reform. European Commission president Ursula von der Leyen recently urged policy-makers to set the right conditions for a net-zero transition through fast permitting, less red tape, and more predictability for investments. The realization is dawning that governments cannot spend their way to a clean-energy future.

The net-zero transition faces major challenges even without permitting obstacles. There is a physical limit to how much solar and wind you can put on the existing electricity grid and still maintain grid reliability. At 30 percent renewable-energy capacity, the California grid is dangerously unstable, overwhelmed by excess electricity in the middle of day and at risk of blackouts on hot summer evenings. Future capacity expansions, such as the doubling of U.S. electrical capacity that would be required by a transition to electric vehicles by 2050, according to the National Renewable Energy Laboratory, will require substantial new dispatchable power in addition to intermittent solar and wind, in a ratio as high as two-to-one if California is any guide. And with nuclear facing the most prohibitive permitting obstacles of any power sector other than transmission, most of the needed capacity expansions will have to come from coal and natural gas. Dreams of an EV future powered entirely by renewable energy are in for a rude awakening.

Both the goal of net zero and the grim economic headwinds now facing American families require permitting for energy projects at a much greater scale and speed than is possible under current law. In the meantime, the only thing renewable subsidies and other climate policies will accomplish is to constrict the conventional energy supply and increase energy costs, making Americans poorer without helping the environment.

The debt-ceiling measure passed by the House contains some improvements to permitting processes but more is needed. Congress should create a single, unified process for major permit applications. It should reduce the burdens and delays that the existing process creates for both agencies and project developers. It should create predictable timetables for permit applications. And there should be limits that effectively curb the litigation frenzy that awaits most major projects once they receive their permits.

Until that happens, America will continue to languish with outdated infrastructure and insufficient energy supply. Congress can save the American people trillions and provide an immense boost to the economy by just making easier for the private sector to deliver the infrastructure that America needs. Permitting reform should be a key part of the debt-ceiling showdown.

Mario Loyola, a former adviser in the Pentagon, the U.S. Senate, and the White House, is a professor at Florida International University.

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Posted: May 2, 2023 Tuesday 06:30 AM