Here comes the sun….not

Germany, once the world’s leading market for solar power, is pulling back its subsidies.

Q Cells, once the world’s largest solar company, just went bankrupt.

This isn’t happy news. If the country that birthed the Green Party cannot sustain its support for solar, what does that tell the rest of us?

It should tell us that it’s time (actually way past time) to get serious about energy and climate policy.

This week, as I followed the news from Germany, I talked with a couple of energy-policy experts who I respect–Jesse Jenkins of the Breakthrough Institute and Gernot Wagner of the Environmental Defense Fund. I also watched an interview (below) with Bill Gates from the Wall Street Journal’s Eco-nomics conference. They disagree about some specifics, but they all agree that the US needs to get a lot smarter about how to drive a transition to low-carbon energy. So let’s try to see what we can learn from Germany, and the rest of Europe.

Perhaps the most obvious takeaway is that we should not place expensive bets on any one solution. That’s what the Germans did, with generous subsidies in the form of a feed-in tariff for solar. Even though the costs of solar have dropped dramatically, the subsidies were not sustainable. Remember when people said nuclear was too cheap to meter. Solar PV is too costly to subsidize on a scale that matters.

Here’s how The Guardian reported the story last month:

You can have too much of a good thing, it turns out. The German government has said it has been forced to cut subsidies for solar panels, because demand was so high it could no longer afford to support the green technology.

In other words, the Germans are cutting back on solar subsidies not because they didn’t work but because they did. The government wants to drive down solar installations to less than half of the 7.5 gigawatts (27% of the world’s total) that it installed last year.

It’s not just Germany, either. The Spanish market went from being the largest in the world, at 2.7 GW, in 2008 to installing 17 megawatts — a drop of 99 percent — after subsidies were slashed and a cap on new installations was imposed, according to ClimateWire [subscription required]. Italy, which was the world’s top market in 2011, is also talking about cutting back.

All this, mind you, is happening in Europe, where there is a broad political consensus that climate change is serious business.

Jesse Jenkins and Gernot Wagner agree that this points to the limits of a clean energy policy that relies on subsidies for deployment. That’s essentially what we have in the US, in the form of tax credits for solar and wind power, and state renewable portfolio standards that require utility companies to generate a percentage of their electricity from renewable sources. Certainly there are benefits to policies that drive deployment–they achieve immediate reductions in CO2 emissions, and they can help get infant industries, like wind and solar, off the ground.

But  by themselves, policies focused on deployment won’t drive a radical transition to a low-carbon economy, which is what we need.

Says Gernot: “Public money is not enough to finance the transition to a green economy. Spending a couple of billion here and there is not going to revolutionize the world.”

Jesse agrees: “The financial burdens of the subsidy will eventually exceed the public tolerance…We need to deploy these technologies, but we need to deploy them in a way that drives the price down as rapidly as possible. We need smarter subsidies.” The Breakthrough Institute, with Brookings and the World Resources Institute, have a report coming out this month that will recommend new approaches–essentially, ways that subsidies can be tied to cost reductions.

What’s more, subsidies can be wasteful.  If I were to install solar panels on the roof of my tree-shaded house in Bethesda, US taxpayers would pay 30% of the costs. That’s unwise and unjust, although not nearly as unwise as given many billions of dollars to oil and gas companies to help them heat up the planet.

So what should we do? Gernot, Jesse and Bill Gates all agree that  we need breakthrough innovation to head off potentially catastrophic global warming. Today’s low-carbon energy sources — wind, solar, biofuels, electric cars, batteries–are still too expensive.

Given the government’s ability to finance renewable energy is limited, more of it should be spent on R&D where it will drive innovation and less should be spent deploying mature or wasteful technologies, like corn ethanol. This requires thinking long term, as Gates explains, because the climate crisis can’t be solved right away:

People underestimate how hard it is to make these changes. That is, they look at intermittent energy sources, they don’t think about storage and transmission. They look at things that are deeply subsidized, and they forget that they are deeply subsidized. They look just at the rich world, and they don’t look at where all the energy increase is taking place, which is in middle and low-income areas. I think the problem is way harder than many observers think.

But I also think, to counterbalance that a little bit…that the potential for innovation, not innovation in the next ten years, because you have to invent in this next ten years, but innovations that will start to be rolled out in say the 20 year time-frame, means that we can be in terms of the first derivative, in terms of the rate of change, we can be pretty dramatic. And so if you took a period like 75 years, if we really fund basic research at a reasonable level, which the U.S. does not, other countries do not, if we have policies to encourage experimentation, which just take any one of the things – nuclear, carbon capture – we’re not doing a good job on that – transmission, storage. If you do the right things, there is a chance to meet very aggressive goals in a 75-year time-frame.

Two final thoughts. As Gernot argues in his book, But Will the Planet Notice? a carbon tax or a cap on carbon emissions is the single best way to drive innovation, deployment and efficiency. Gates says pretty much the same thing:

A serious carbon tax…is the most important thing to do….that’s the greatest failure in our energy policy.

How to change politics to make a carbon tax possible is a topic for another day. I’m skeptical that we will be able to do so rapidly enough to forestall serious global warming impacts, which is why I wrote about the need to research geoengineering and air capture of CO2 (they’re not the same thing) in my short ebook, Suck It Up: How capturing carbon from the air can help solve the climate crisis. In the book, I write about Gates’ finding for research into geoengineering and and his support for a startup company called Carbon Engineering.

His talk is well worth watching, If you prefer, you can download download a transcript [PDF].

Comments

  1. Ed Reid says:

    Marc,

    A carbon tax (price on carbon) is a “blunt instrument”. It bears no direct relationship to its intended purposes, with the exception of raising new federal tax revenue. If the tax rate is high enough to cause an immediate shift to non-carbon emitting technologies, it would be far too large, should those technologies ever benefit from economies of scale or price reductions resulting from technological advancement. However, once government became addicted to the new revenue, breaking the addiction would be very difficult.

    A carbon tax is “justified” (rationalized?) on the basis that carbon is a “pollutant” whose emissions must be reduced to avoid CAGW. However, CAGW is a hypothesis based on the outputs of a variety of climate models which have demonstrated limited “skill” in hindcasting the instrumented past, or forecasting the future which has unfolded since their development. How much should we rely upon models that don’t.?

    Carbon dioxide, the “evil” GHG of choice, is a globally well-mixed trace gas. Carbon dioxide emissions in the developed countries are relatively stable. However, those emissions are growing very rapidly in the developing countries, particularly in Asia, as Bill Gates recognizes. Reducing developed country carbon dioxide emissions has the potential only to render global annual emissions somewhat less than they might otherwise have been, though they would still be greater each year. The atmospheric concentration of carbon dioxide would continue to increase, albeit at a slightly slower pace, ceteris paribus. Of course, if higher energy prices resulting from the carbon tax in the developed countries were to drive additional manufacturing to Asia, all bets are off.

    There is no state, regional, national or multi-national “solution” to the “problem” of carbon-driven CAGW. There is a global “solution”, assuming that the “problem” is amenable to a “solution”, or there is no “solution”. There will only be a global “solution” if the “cure” is more attractive that continuing along the current path.

    China has decided to reduce its reliance on solar and wind in favor of nuclear. However, China is able to build nuclear facilities much more cheaply than is currently possible in the US, in part because China is not “blessed” with the plethora of environmental activists and plaintiff’s attorneys available in the US.

  2. You got a couple of facts wrong about the situation in Germany.

    For one, Germany has not “put an expensive bet on only one solution”. The feed-in tariff law works for all forms of renewable energy generation, and the government is especially interested in offshore wind.

    Next up, the reductions in solar feed-in tariffs are not because Germans could not afford them or would not want to pay them. We are talking about only about 70 euro a year and household, compared to 380 euro a year in profits of the big utilities. A 61% majority favors even higher surcharges. The reductions were done because prices are collapsing so fast that keeping up the old tariffs would lead to much too high profits for owners of solar.

    As you note correctly, the system has been extremely successful in reducing prices, a success that will also benefit solar in third countries like the United States.

    You may also be wrong about calling the feed-in tariff a “subsidy”, depending on how one understands that term. This is not taxpayer money that is spent. That’s not the way a feed-in tariff works. The Court of Justice of the EU ruled in 1992 that these are not subsidies.

    That of course means that it is not possible to just shift funds from “deployment subsidies” to “research subsidies”.

    As a matter of opinion, while research is certainly necessary, that is no excuse to slow down deployment of existing technology until Bill Gates has finished his magic technology development in a couple of decades. Deploy, deploy, deploy some more, and deploy, as far as I’m concerned.

    • Marc Gunther says:

      Karl, yes, you are right that the feed-in tariff does not rely on taxpayer funds. But it is a subsidy in the sense that other electricity users are subsidizing the deployment of solar energy and other forms of renewable energy. Not nuclear, however.

      Your explanation of why the subsidies are being cut differs from what I read in The Guardian and BBC. They cited political opposition to the costs. Whatever the reason, the effect of the reduced subsidies–despite the lower costs of PV — is that deployment will be slowed by more than 50%.

      And while in Germany it’s not possible to shift funds from deployment to research, that’s certainly an option in the US.

      I wrote this not because I oppose solar or efforts to deploy more clean energy, but to bring some skepticism to the idea that solar can solve our problems.

      Paul Krugman, for example, wrote last fall: “Fracking is not a dream come true; solar is now cost-effective. Here comes the sun, if we’re willing to let it in.” It’s not a matter of being willing. It’s being able to sustain political support for a costly form of clean energy.

      • As to the subsidy point, I agree completely. It is a question of how that word is understood.

        I also agree that some politicians have expressed concerns about costs. That, however, does not make those concerns true, except if you think that about 70 euro a year is even worth mentioning compared to the much larger costs of global warming. Also, those concerns are much less convincing after the massive price reductions have already happened as a consequence of having the feed-in tariff in the first place. Adding another 8 GW this year would cost less than an additional 10 euro at the feed-in tariff levels before the last round of reductions.

        We will see what kind of reductions in deployment the latest cuts will bring. No one can say now what will happen, though early reports say that there has been another last-minute boom sale in the first quarter because of the anticipated cuts.

        As to “solar being a costly form of clean energy”, if large-scale projects can be done at 13.5 cents euro with German solar resources, which is the tariff after the latest round of cuts, they could be done at about 5 cents US in good United States desert locations even now. Eventually (in less than a decade) solar PV will be the cheapest option by far in all places getting over 2,000 kWh per year and square meter.

  3. Hi Marc

    I read your ebook ‘Suck It Up” and agree with you. The challenges now is how to get everyone on the same page.

    I have no formal qualifications, I am a high school educated, mother to two children, living from pay to pay – but I am a passionate advocate for our environment and devout social media follower.

    I have been following humankinds plight to ‘Save The Planet, From Ourselves…!’ using:
    Facebook Page: BecGreenGecko
    Ozoshare: http://www.ozoshare.com/bio/ozone630
    Twitter: @BecGecko
    Green Gecko: http://greengecko.greatdiscoverymall.com

    I have some ideas that I would like to share with you, if that’s OK?

    If governments worldwide were to embrace solar power usage coupled with a Carbon Tax that would pay for solar panels on the roof of every house/business, then the idea would be that the household/business would use whatever power it needs, free of charge and the excess would be fed straight back into a collection point to be distributed wherever else needed. Sounds good huh?

    Putting a price on carbon is the only way that big polluters will finally start paying for their emissions and damage to our environment. The Carbon Tax has to be global for it to work effectively though. The message must be clear. Use fossil fuels and pay a high price.

    • Ed Reid says:

      Rebecca,

      The use of fossil fuels has been responsible for the greatest improvement in the human condition ever experienced. The developing countries are expanding their use of fossil fuels because they wish to share in that improvement. While you appear to be a big fan of benevolent despotism, I would suggest to you that it has never remained benevolent for long; and, that those exposed to it have suffered greatly as a result.

      “You vil do what I say; und , you vil like it.” (except that you probably wouldn’t)

  4. Marc Gunther says:

    Jigar Shah (who started solar company Sun Edison) reminded me in a tweet that solar power is rapidly growing globally, as well as in the US, even as Germany and Spain have pulled back. That’s most because costs are coming down, but also because political support for clean-energy subsidies is growing in China even as it is weakening in the EU and the US.

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