Renewable Energy: Sneaking in the Backdoor or Walking Through the Front?
- May 28, 2008
Renewable Energy in the U.S.: Sneaking in the Backdoor or Walking Through the Front?by Michael Hoexter, Ph.D.
The postponement of the renewable energy investment and production tax credits yet again highlights a long-term issue for the U.S. renewable energy industry and its supporters: how do we create a stable policy environment for renewable energy as the social demand for it increases? For tactical reasons, we should expend some effort in getting the tax credits reinstated in some form, so existing projects don't get put on ice. Still, letting tactical considerations dictate strategy is a sure-fire recipe for a scattershot or patchwork approach to what are systemic difficulties. For too long we have settled on policies that are about reaching relatively modest goals and in so doing have given up some of the most powerful tools in our arsenal. The current policy toolkit has been adapted to a now bygone era of cheap fossil energy and relative indifference to issues like global warming and sustainability.
Despite renewable energy's overall favorable image in the mind of the public, these current policy instruments are the equivalent of sneaking in the backdoor. A tax credit, especially one that is applicable largely to corporate entities, is a "backdoor" way to get government assistance; tax credits are government expenses without a specific budget line or earmark. The average voter, even if he or she understands something about the issue, is going to have limited sympathy for the recipients of institutional tax credits.
Our taxes, despite all the anti-tax hype, are or should be payments for effective government services, exemption from which puts one in the uncomfortable position of being "special" and vulnerable to political attack. Getting and keeping these credits is critically dependent upon a lot of old-fashioned lobbying, lobbying that is, no matter the cause, looked at as ethically suspect because the most effective kind of lobbying in our privately financed election system involves copious displays of, if not legal and illegal transfers of, wealth.
So, practically speaking, a policy strategy that is dependent upon tax credits or other "backdoor" means places the renewable energy industry in direct competition with the most entrenched interests at the backdoor without the help of pro-renewable public sentiment or particularly deep pockets. These old, polluting industries are highly motivated to maintain their backdoor access as they have too much "dirty laundry" to air in public. Without a strong argument for renewable energy policies that mobilizes voters, many politicians will put clean energy issues on the back burner as they just have with the tax credits.
While tax credits are definitely backdoor, other current renewable energy promotion policies also bear the traces of timidity at a time when boldness is required. The Renewable Portfolio Standard (RPS), popular in the U.S., tends to bring on renewables into the generation mix as "window dressing" and not as potential substitutes for fossil generation.
The state-by-state structure of RPS statutes may also act as an impediment to creating an integrated nationwide renewable energy system, as some states are at natural disadvantages relative to others in developing renewable energy projects. Furthermore, the fundamental driver of the RPS is punishment of utilities for not achieving the percentage standard via fines, while requiring that they continue to deliver energy at the approximate price of current fossil generation.
The backdoor component of RPS strategies is that it allows policy makers to proclaim support for renewables while leaving the financing of these still somewhat more expensive technologies out of the picture or hidden from view. Consequently, very few utilities have heartily embraced the RPS as an opportunity to transition to the energy of the future and instead the RPS is treated by many as another regulatory burden and even a threat to the bottom line.
Renewable Energy Certificates (RECs), a.k.a. "Green Tags" or Green Power Marketing, are another policy instrument that is too modest in its ambitions and usually does not drive much renewable energy investment. Often paired with the mandates of the RPS, RECs are supposed to encourage renewable energy investment by adding a tradable supplement or green attribute to green electricity per megawatt hour (MWh) generated that is assigned a value by demand for green electricity credits. When businesses or websites say they are run on renewable energy, most often they have purchased these tradeable certifications rather than purchased an actual renewable generator; as a standalone policy, REC trading tends to mobilize the (small) segment of ethical or socially responsible investors and business owners.
Renewable energy policy will become more effective if the renewable energy industry and its advocates are able to better communicate their goals and methods directly to the American people. The partial and backdoor methods, despite their supposed realism, are actually much more difficult to build on and build out because of these communication problems. While it is understandable that lobbying, RPSs, RECs, and tax incentives have played a role in the U.S. to get some renewable projects in the ground, it is now time to develop a forward-looking renewable energy strategy rather than a collection of tactics. Rather than work out a backdoor strategy, I am proposing a strategic direction that might be called "walking through the front door."
The Front Door
Right now we, as a public, have every reason to demand that renewable energy be the basis for our future energy system: it is non-polluting and sustainable. Furthermore the use of renewable energy does not endanger the climate and the fuel is largely free. Many people, including myself, are arguing that we already have the technologies to replace dirty technologies with clean ones; I have outlined 24 existing and emerging technologies that can reduce our greenhouse gas emissions by as much as 90%, many of which are renewable energy conversion technologies. The strategy of "walking through the front door" means, in this case, adopting policies that as rapidly as possible transition our energy system from polluting, unsustainable fossil fuels to sustainable, renewable sources.
Walking in the front door means adopting policies that see renewables not as window dressing nor as a motley collection of generators but as an integrated system designed to deliver a great majority of the energy consumed in our society. This means bringing together policies that promote transmission, distribution, storage and generators that will work together to serve our energy needs. I call the vision of our future energy system the Renewable Electron Economy, as electricity is the most efficient energy carrier we have.
Furthermore "walking in the front door," means pairing targets for increasing renewable generators or other clean infrastructure investments with financing mechanisms that will enable a realization of those plans. Too often, renewable energy advocates or politicians enamored with "green" have not looked hard at how to pay for their lofty goals. The ultimate sources of financing for clean energy systems are some combination of electric rates and tax revenues, as well as individual or corporate purchases of energy conversion systems. The most effective policy package will rely on some combination of these funding sources but will realistically assess overall costs or percentage of our GDP that will need to be devoted to developing a clean energy system.
Given that there is already a set of effective technologies available or in the pipeline, walking through the front door means adopting policies that speed their deployment as substitutes for polluting fossil power. Below are eight "front door" strategies that can potentially be employed, some subset of which can effectively match our actions with our intentions:
- Renewable generators and carbon-free storage should receive
guaranteed premium rates for electricity or grid ancillary services as an
incentive and means to bridge the early commercialization "Valley of
- Renewable generators should be assigned priority on the grid.
- Federal and state regulatory bodies should be re-chartered to support
development of renewable energy as the primary energy system, removing
where possible impediments to the regional, national and continental
pooling of natural energy flows through the transmission grid.
- Externalities of dirty energy should be priced at a high rate;
substantial carbon fees or penalties that will disadvantage GHG emitting
- An extensive publicly supported program of research into renewable
energy with an emphasis on deployment and reliability issues should be
- We should form a federal renewable energy authority like the TVA or
Bonneville Power Administration to commission and operate renewable
generators and/or build a national transmission network for
- The government should appoint a Special Master or "Court of
Chancery" for transition from fossil fuels and dispose over a
substantial budget to help utilities break long-term fossil generation
contracts when a renewable alternative is available.
- Coal mining and oil- and gas-dependent communities and organizations should have a program for "Transition from Fossil Fuel."
Of these strategies, the first two are characteristics of effective feed-in tariff (FIT) laws as practiced in Germany and Spain with the third also partly addressed by these laws. Various carbon trading schemes or carbon taxes are instances of the fourth strategy. The fifth and sixth strategies are dependent upon a substantial boost in funding for the Department of Energy and an expansion of its role in leading the energy business. The final two strategies are innovations I am proposing here that would speed the transition from coal and fossil generation to renewable sources.
What is keeping us from taking the straightforward approach in one or many of these forms?
Cheap Energy Addiction
While it is tempting to point the finger at entrenched fossil fuel interests or unimaginative bureaucrats, I believe the most significant resistance comes from a set of assumptions that cuts across almost all stakeholders in the North American energy markets, which I have called the Cheap Energy Contract. While it is true that substantial resistance to change will come from these entrenched interests, most of us are bound to these interests by an intersection of our own short term interests and commitment to budgeting as little as possible of our funds to something we can neither taste, hear nor see.
The Cheap Energy Contract is a social agreement about energy that requires government and energy sellers to make energy cheap, even if this means that it is priced less than it costs to produce. Governments have risen and fallen based on the price of energy, and particularly in the U.S., with the cost of gasoline. The Cheap Energy Contract breeds a sense of entitlement on the part of most citizens and energy users that looks very much like a "cheap energy addiction."
In trying to serve this addiction, advocates of renewable energy have plied the energy marketplace with promises that renewable energy is now or very soon will be as cheap as our current energy supply. The focus on the current price of renewable energy as the decisive factor in its market-readiness has inhibited its adoption at higher but still not excessive prices. There is therefore, in practical terms, a discounting of renewable energy's value: its sustainability, its carbon-neutrality, its regional or at least continental origin. Conceding to the monocular focus on its present day price ends up reducing the value of renewable energy to at or below the level of its better-established competition.
Mid-priced Energy is OK, Subsidizing Clean Energy is OK
There are so many public benefits to ramping up the use of renewable energy that should be obvious to most readers. But the primary driver, which current policy efforts do not fully respond to, is the growing climate crisis. To get the climate-related benefits of RE sooner we need to start working with the technologies we have now and creating economies of scale that will later pay off in cheaper prices for energy.
Seeking or promising instant gratification (clean and cheap all at once), renewable energy advocates in the U.S. have forgotten the wisdom of taking on complex challenges one step at a time. This means accepting that energy will, rather than be cheap immediately, be mid-priced for a transitional decade or decade and a half. These payments, along with participation in cooperative clean energy investment vehicles, would be the equivalent of buying War Bonds during the Second World War. If an aggressive program of energy efficiency is paired with increases in costs per unit energy, the net effect of higher unit energy prices on most budgets is minimal.
In this vein, the often-heard protests that we have to meet the China price tomorrow and solve the world's climate problem in one fell swoop appear naïve: renewable energy solutions can be developed for the richer countries of the world, which eventually will become cheap enough for the rest of the world. Would you in the 1970's and 80's have stopped companies in the rich countries from developing the (expensive) mobile phone that in the 90's and 2000's became the telecommunications medium of choice in much of the developing world? To hold practical solutions hostage to grandiose charitable gestures or overweening technological ambition is foolish.
The most aggressive and targeted "front door" solution that has gained international currency is a comprehensive feed-in tariff that mobilizes private investors, prices in current costs of renewable energy and puts pressure on the industry to reduce costs through systematic lowering of the guaranteed tariff price in successive generations of power plants. Germany and Spain have embarked on this path and seem to have reached a broad social consensus in their countries that this is the way forward. We can continue to build on their success with a feed-in tariff system that additionally encourages the deployment of clean storage technologies complementing intermittent renewable generators.
In the U.S., renewable energy advocates have not trusted that people are willing to pay more for a cleaner energy future so have been more enamored of "backdoor" and half measures that are less likely to provide the basis for growth of a largely renewable energy system. The timidity of our policies is a great irony, as the strength of our renewable resources should allow us to generate a large majority of our energy from renewable sources within a period of two to three decades. If we can combine our natural wealth with sufficient political will and effective financing mechanisms, we will have some reason for optimism that a renewable energy future will be in sight.
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- Renewable generators and carbon-free storage should receive guaranteed premium rates for electricity or grid ancillary services as an incentive and means to bridge the early commercialization "Valley of Death."