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Will Regional Imbalances in Clean Energy Shape Our Economy?

Michael Bloomberg, CEO of Bloomberg LP, raised a provocative question at the 2016 Investor Summit on Climate Risk in New York City on Jan. 27. If certain states invest in clean energy proactively while others delay, will the slowest states experience an economic decline?

Arizona road and mountain
This photo was taken in Arizona by Moyan Brenn.

“The Paris agreement is putting the whole United States on a low-carbon pathway,” said Rachel Cleetus, lead economist and climate policy manager at Union of Concerned Scientists. “States are getting underway with this and making sure that they are creating opportunities. We are transitioning away from coal. That’s an ongoing trend that’s unlikely to change.”

States should “reap the benefits of the low-carbon economy or get mired in looking to the past,” Cleetus said. “When you look around the country, the opportunity that we see here is that because this renewable energy resource is in every state in some form or other, no one needs to be left behind. The states do not need to compete.”

Which regions are taking the lead now? The results vary considerably across three arenas: energy efficiency, solar power, and wind power. The West Coast and Southwest are performing well. The Northeast takes a strong interest in energy efficiency, but is not leading the pack in renewable energy.

According to American Council for an Energy-Efficient Economy’s 2015 State Energy Efficiency Scorecard, the top 10 states for energy efficiency, in decreasing order, were Massachusetts, California, Vermont, Rhode Island, Oregon, Connecticut, Maryland, Washington, and New York, followed by a tie between Minnesota and Illinois.

These high-performing states are concentrated in New England, on the West Coast, and to a lesser extent in the upper Midwest. If investment in energy efficiency enables these states to be ahead of the curve economically, then the South, Southwest, and Great Plains states may fall behind.

However, it is unclear how this might unfold as climate finance ramps up. The playing field could be leveled by changes in policies, utility behavior, and investor goals.

“The mindset of utilities really matters,” Cleetus said. “Initially, there’s a lot of reluctance.”

According to Andy Darrell, chief of strategy for global energy and finance at Environmental Defense Fund, energy efficiency financing in the United States has proven to be more challenging than solar financing because of the sizes and traits of the deals involved.

“There are several barriers to scaling up clean energy technology and energy efficiency,” Darrell said. “Some of those barriers are regulatory. The legacy regulatory system… makes it difficult and challenging to integrate distributed renewable energy in the way that is required to address climate change.”

The 10 leading states in solar installations, in decreasing order, according to Solar Energy Industries Association’s data published in 2016, are California, Arizona, North Carolina, New Jersey, Nevada, Massachusetts, New York, Hawaii, Colorado and Texas. These states are in the Southwest and on the southern West Coast, with a few exceptions.

Cleetus said these top 10 states accounted for 90 percent of solar capacity in 2015.

“The technical potential is considerable around the country,” Cleetus said. “There’s a National Renewable Energy Laboratory report that lays out the renewable potential around the country. There’s no barrier from that perspective for any state to get in the game. There are some states that take a leadership role and others that fall behind.”

Green banks, public benefit funds, and net metering can help drive clean energy growth, Cleetus said.  “The state green banks try to leverage private-sector funds using seed funds to connect investors with opportunities.”

According to American Wind Energy Association’s data from 2014, the top states in the wind power arena were, in decreasing order, Texas, California, Iowa, Oklahoma, Illinois, Oregon, Washington, Minnesota, Kansas and Colorado. These states are dispersed across the Southwest, the West, and the Midwest.

Cleetus said the 2015 legislation about tax credits for the solar and wind industries can aid in expanding these markets to states where they are weak currently.

“As coal becomes more uneconomic, some states are becoming more reliant on natural gas,” Cleetus said. She said she advises states to moderate their natural gas dependence by ramping up renewable energy. “With the cost of wind and solar going down so much, this is a good time to be taking advantage of these opportunities.”

Natural gas has some disadvantages. “It’s still a fossil fuel. It still has carbon emissions,” Cleetus said. “When you have a cold snap in winter, you have price spikes.”

As states work to build their climate resilience and financing options, the question Bloomberg raised remains unanswered. Which states will take the lead? What role will climate financiers play? What economic impacts will emerge? Who will profit and benefit from the growth of clean energy in the United States?

Stakeholders in the United States are working to respond to the discussions that took place in Paris in December. As their plans grow, the landscape of future investment will emerge.

“Climate and climate finance have made their way into Wall Street and the investor community,” Darrell said. There’s a “level of seriousness and dedication we haven’t seen so far. There are opportunities that are just emerging now.”

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