“Free Market” is an Oxymoron: Parity at the Party for Renewables

Libertarians, listen up! I’m preachin’ to y’all today. Renewable energy sources are not competitive with fossil fuels in the US. This is undeniable, but also batshit crazy. I want to talk about one way that government policy discourages the development of renewable technology. And it’s not subsidies for fossil fuels, so don’t roll your eyes at me yet.

Private investment is a necessary condition for renewable energy technologies to become competitive with fossil fuels in a “free market.” But, in addition to active encouragement of fossil fuels through measures like subsidies, policy actively discourages private investment in renewables. Here’s a brief explanation of one way this happens:

Let’s talk about a special magical unicorn in the business world: the Master Limited Partnership (MLP). An MLP is a business structure that is taxed like a partnership, but can be traded publicly. With a partnership, every partner is taxed individually, but not the company itself. But each partner carries some liability, and a partnership is fairly illiquid, meaning you can’t bail easily if shit gets real. On the other hand, with a publicly traded corporation, both the corporation and the shareholders are taxed. Shares are more liquid, and liability is limited.

An MLP is a sort of hybrid, where only the shareholders are taxed on income, but stocks can be traded publicly. The advantages of this are that it attracts more capital investment, due to liquidity and limited liability. In an MLP, there are limited partners, the ones who provide capital and reap sweaty wads of cash, but don’t have a hand in the day-to-day operations. Limited partners hold larger shares. Then there are general partners, who run the place. Each of these usually holds 2% of the shares. But everyone is taxed individually, while the operation itself is not taxed. Pretty damned attractive.

Right now, you can only be an MLP if your income is derived from real estate, pipelines, and natural resources like oil, gas, petroleum products, timber, coal, minerals, etc. Why not renewables like wind, biomass, geothermal, and solar? Removing obstacles to investment opens up opportunity for innovation. Removing obstacles to investment makes it easier to enter a market, making the market more competitive overall. Removing obstacles to investment clarifies prices, encourages innovation, and widens competition.

To that end, Rep. Chris Coons (DE) has proposed legislation entitled “The Master Limited Partnerships Parity Act,” which would extend the opportunity to register as an MLP to renewable energy projects. One specific thing I’d be excited to see is wider competition for combined heat/power infrastructure. PARTY. Write your representative.

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