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Can Tax Incentives Bring Back ...

Can Tax Incentives Bring Back Manufacturing to California?

Michael Kanellos, Green Tech Media

California might be expensive and highly regulated, but the state continues to try to woo manufacturers with tax credits and other incentives.

The California Energy Commission will use approximately $95 million of the $226 million it received under the American Recovery and Reinvestment Act to try to get heavy green industry to move here. Approximately $30.6 million will go into a fund to provide low-interest loans for companies that will produce equipment for energy efficiency and renewable energy. The remaining $59.5 million will go toward companies involved in biomethane production ($21.5 million), ethanol ($6 million), vehicles and components and advanced biofuels.

Meanwhile, Governor Arnold Schwarzenegger is touting a plan to exempt manufacturing equipment deployed for the green industry from sales tax. Earlier in the year, he also unfurled a program to provide credits for costs associated with training new manufacturing employees. Thus, manufacturers might be able to benefit in two ways when relocating to the state.

Despite some of the dings California has earned for being unfriendly to business, Karen Douglas, who chairs the CEC, argues that it remains one of the best states for green start-ups and established companies.

“We’re a world leader in technology and a world leader in renewable energy and energy efficiency policy,” she said in an interview. Many of the nation’s energy efficiency programs grew out of Title 24 passed by California in the 1970s. The state also has some of the highest renewable portfolio goals.

“There is actually tremendous interest in manufacturing in California,” she said. “Financing is the real barrier.”

How well the state succeeds in keeping and building a green industry will definitely bear watching. First, the bad news. California remains one of the more expensive states in the U.S. and at times it seems to simultaneously promote and impede the green industry.

The latest conflict revolves around Brightsource Energy. The Oakland, Calif.-based company wants to build a 392-megawatt solar thermal power plant in the center of the state. The project, however, has been scaled back due to objections from environmental groups. Wind and solar developers have also retreated from plans to erect renewable power facilities in the Mojave after U.S. Senator Dianne Feinstein introduced legislation to establish two national monuments on an area covering one million acres in the region.

But it’s not just renewable and clean energy advocates attacking the industry. Former eBay CEO Meg Whitman says she will delay implementing the state’s carbon regulations the first day in office if elected. That would be a “colossal mistake,” said former eBay exec turned VC Steve Westly.

Chairman Douglas noted that there are twelve large scale (50 megawatts or more) solar thermal projects pending in front of the CEC and that debate remains inevitable.

“Solar projects are more resource-intensive. They can occupy multiple square miles,” she said.

Meanwhile, other states and regions are offering juicy tax and incentive programs. Both Oregon and Arizona are actively recruiting solar manufacturers. Samsung recently agreed to invest $6.6 billion in Ontario, Canada and effectively to use the province as the base for its global plans to conquer greentech. Ontario also plans on restructuring its tax code and reducing corporate income and sales taxes to attract businesses, according to John Marshall, CEO of the Ontario Capital Growth Corporation. The resulting tax code will operate more like a VAT.

“The rate of tax on new investment will be cut in half,” he said.

Now, the positive side. Although many states and nations have tried to replicate the so-called “Silicon Valley Model,” few have succeeded. The state remains one of the best places for turning lab concepts into companies and, more importantly, for finding the people qualified to do it.

California’s green business has also spread across the state. Biofuel and green chemistry start-ups have begun to grow out of the biotechnology cluster around the University of California San Diego. Southern California is also home to companies like Transonic Combustion and Achates Power that want to improve the efficiency of gas engines. Fisker Automotive and Tesla Motors are based here, as well.

We shall see.

(read online version)

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