Cash for Clunkers Pilfers Renewable Energy Loan Program

Last Updated Aug 7, 2009 5:48 PM EDT

Cash for clunkers, the popular federal car trade-in program that ripped through $1 billion in a less than a month, has been extended thanks to money pilfered from a different stimulus fund that provides loan guarantees to clean energy projects.

The Senate approved Thursday night extending the clunkers program by providing another $2 billion, which should keep it afloat through the end of August. President Obama signed the bill Friday. BNET Auto's Jim Motavalli does a good job explaining the clunkers program.

For all of the benefits touted by its supporters -- both economic and environmental -- it's worth noting that the money has been taken from another program aimed at creating jobs, reducing emissions and making the country more energy independent.

The $2 billion used to extend cash for clunkers was drawn from the Department of Energy's loan guarantee program, a $6 billion fund to support clean energy projects that use innovative technologies. That means projects using biomass, hydrogen, solar, wind and carbon sequestration technology would qualify.

Cash for clunkers is considered successful. Folks are getting more fuel efficient cars, local dealers and automakers receive a financial boost and fewer greenhouse gas emissions are put into the atmosphere. But it's taking money away from a program with far more economic promise.

The global recession has made it incredibly difficult to access financing. Meaning, lenders are not lending money. And that pretty much puts a halt on economic growth, and is especially problematic for emerging industries like renewable energy.

The DOE's loan guarantee does exactly what it sounds like: takes some of the risk away for lenders by co-signing the loan and setting aside a credit subsidy, a kind of insurance in case of a loan default. The DOE reviews all of the project proposals to make sure they are commercially and financially viable. Greentech Media explains loan guarantees and how they work in great detail.

This is important because without access to credit many worthwhile projects that would create jobs, help develop an industry here in the United States and reduce greenhouse gas emissions can not get started.

The loan program simply provides a better bang for all of our bucks. Consider it this way. IDC Energy Insightsfound the impact of $1 in credit subsidies might result in as much as $28 in project spending, assuming a project cost is paid for with 40 percent equity and has a 6 percent credit subsidy rate, notes Greentech Media. Under that scenario, the $6 billion in credit subsidies would translate into as much as $168 billion in economic activity.

Various members of Congress have said the money will be put back into the loan guarantee program. And that may happen. But by taking the money out of there in the first place, Congress is sending a message to the public -- even if it's unintended -- with where its priorities lie.

Photo from Flickr user Dave_7, CC 2.0
  • Kirsten Korosec

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