Public Renewable Energy Policy Call to Action

The International Energy Agency projects that energy from renewables will increase by 50% in the next 20 years, but renewables will remain just 8% of global energy consumption. This renewable share could more than quadruple, the IEA believes, if market barriers are removed. Enlightened government energy policy makes renewables more cost-competitive, stimulates market demand and encourages research and development.

Energy markets are not competitive because government subsidies make conventional fuels (oil, coal and gas) artificially cheap. The $300 billion per year that governments spend globally on fossil fuel and nuclear subsidies makes it nearly impossible for new technologies to compete. In addition to this price distortion, energy prices do not include externality costs from environmental damage and negative health effects caused by pollution. Until energy prices reflect true costs, sustainable technologies will struggle to compete.

Subsidy reform is essential. Progressive government policies have slowly reduced subsidies for the mature fossil fuel industry. China reduced its coal and petroleum subsidies by nearly $15 billion in the 1990s. The consequent market diversity helped China reduce CO2 emissions by 17% and coal consumption by 411 million short tons, while its economy flourished.

Temporary subsidies for renewables are necessary and effective policies. Temporary subsidies reward clean and energy-efficient technologies, while providing the jump-start needed to enter the market. They can be beneficial in developing nations, where foreign and domestic investment is small. Nepal's Biogas Support Program, which provides funding for approximately one-third of system costs for new biogas plants, is a successful case study: 20,000 new systems have been built each year since 1992, while the real price of biogas has dropped 20%.

The Japanese government's photovoltaic subsidy made Japan the world's leader in photovoltaic (PV) manufacturing. The Solar Initiative increased public funding from $17.3 to $191.0 million between 1994 and 2001, increasing manufacturing by 46% and decreasing PV's price by more than half.

Tax incentives are another government fiscal incentive to help individuals and corporations justify new technology investment. To mollify the high initial costs, governments provide rebates, tax deductions and credits to producers and consumers who invest in renewables. Production tax credits compensate facility owners that generate energy from renewables. Emission taxes force polluters to pay for damages caused to society. Other taxes benefit those who purchase renewable energy technology-based equipment, vehicles, or locate renewables facilities in specified geographical regions.

The U.S. production tax credit provided a $0.015/kWh credit to wind operators, tripling U.S. wind development from 1992 to 2003. It expired in 2003 and has not yet been extended. Thousands of megawatts of wind farm projects have been postponed until Congress revisits the legislation and makes the market for wind investments financially stable. Others, such as California's 15% solar tax credit, are thriving and have enabled individuals to afford rooftop PV and backyard windmills.

Emission, carbon and overall energy taxes internalize health and environmental costs of pollution and enable clean and efficient technologies to become more competitive. In Denmark, an overall electricity tax promotes energy efficiency.A partial rebate from the tax supports wind energy. A combination of progressive subsidy and tax policies in Denmark has made wind turbines the nation's largest export, more than $3 billion a year, according to the European Wind Energy Association.

Renewable portfolio standards (RPS) mandate the electricity industry to generate a minimum percentage of energy from renewable resources. The law allows flexibility for each utility to choose which resource is most appropriate for its market. Fifteen U.S. states now have RPSs. Texas's RPS has been so successful that the state installed more wind power in 2001 than the entire U.S. in any year prior. In addition, this law produced more than 2,500 jobs in 2001.

Electricity feed-in laws (EFL) are popular in Denmark, Germany, Italy and Spain. Germany quadrupled its installed PV capacity and now is the world leader in wind development, primarily because of the success of its EFL. EFLs require the government to set a fixed price for actual generation from each renewable resource. Because the producer is guaranteed a price for the electricity, risk is reduced. In Germany, the price for PV has dropped by about 50% due to the increased capacity.

Substantial research is needed to sustain renewables' competitiveness edge without government aid. Studies show that investing in R&D is lucrative for both the investor and for society. In the U.S. economy, the rate of return for R&D is 20-100%. Yet public funding in industrialized countries has fallen from $15 billion in 1980 to $7 billion in 2000 (just 8% for renewable resources).

Policies that eliminate unnecessary fossil fuel subsidies and increase renewables' economies of scale spur R&D by private industry. Additionally, technology and emissions standards create a need for more efficient technologies. The United States' Corporate Average Fuel Economy standards increase the minimum mileage per gallon for motor vehicles and provide an incentive for manufacturers to produce more efficient vehicles. The U.S. Energy Star labeling program is a successful marketing campaign that prompts companies to develop more efficient appliances, electronics, lighting, and commercial equipment.

Implementing new energy policies makes economic and political sense. Subsidy reform, tax incentives and renewable portfolio standards help make the energy market more competitive, and therefore, more stable. The World Energy Council projects that energy demand will triple by 2050. What's needed to make market prices reflect true energy costs and increase demand and private investment? To stabilize greenhouse gas concentrations, every nation must make a conscious shift to accelerate their renewable energy sector. The Kyoto Protocol is insufficient. Progressive government policy can meet the new demand with renewable energy, which is both sustainable and abundant on every continent.

Power Engineering October, 2004 Author(s) : Sara Kamins Peter Meisen