The Price Isn’t Right
May 28, 2010
It’s sometimes tough, when supposedly writing about solar, the whole of solar, and nothing but solar, to keep from straying into all kinds of peripheral fields.
Poor writing discipline? Almost certainly (along with atrocious penmanship), but an understandable fault, because solar power affects and is affected by so many externalities - utility pricing, climate change mitigation, nuclear policy, market equities, water supplies and more - that one can’t consider it in isolation.
Of course, if our existing energy regime were truly clean, reliable and sustainable we’d have no reason to tinker with, or write about, photons, ions, heliostats and heat exchange fluids. Trouble is, we know better.
We know, for instance, that we can’t keep burdening our waters with mercury and our air with particulates from coal-burning plants. We know that we can’t combat the problems that oil brings to our environment by finding more oil, or finding it in different forms. We know that we can’t entrust our energy future to nuclear technology unless we as citizens are prepared to underwrite the construction costs - and inevitable overruns - of every reactor built, and commit ourselves to a power source with no solution to its waste problem and an insatiable demand for water in a drying world. We also know that no amount of success in other fields, including health care, education, and anti-terrorism, will mean anything if our planet’s climate is unable to sustain our species.
Most of all, we know that Solar is at least part of the response to everything else we know. Even if we doubt the evidence of climate change, we must know that dependence on a diminishing source of energy derived from “remains of dinosaurs and their urine”, as Rocky Mountain Institute founder Amory Lovins recently put it, is a fool’s game. If we don’t turn away from that kind of fuel, and fast, it will fast turn away from us. And when that happens, it will be too late to start thinking about where to site all those wind farms, whether to raise CAFE standards above 35 mpg, and how to convince homeowners’ associations to allow solar panels on their color-coordinated roofs. Those are decisions we should have taken long ago and be implementing now.
Sine Qua Non
Practically every observer of today’s energy scene agrees that the one essential to seriously ramping up our response to climate change is to put a price on carbon. That is to say, the price of the carbon products we use - coal, oil and gas - must reflect the full social, economic, and environmental costs of producing and using it. That includes the cost of maintaining military strength to protect oil supply routes (amounting, according to one report, to more than the value of the oil being transported!) It includes the public health costs of extracting the fuel source from the ground and fouling our air and water with it. It includes remediation of the environmental damage done by its use; ask Louisiana residents and fishermen about that one. It includes the inevitable long-term mitigation costs of destructive climate change caused by greenhouse gas emissions. None of these costs are included in the price you pay to the gas station owner or the electric utility, but should be. It’s time we stopped privatizing profits and socializing costs in our energy use.
Did I mention that the fossil fuel industries - some of the most mature and profitable industries in the land - also benefit from government rebates, subsidies and tax incentives to the tune of many tens of millions of dollars per year? Like the externalized costs mentioned above, these payments come straight from our pockets.
What will carbon pricing do?
The most obvious effect of pricing carbon equitably is that it will level the playing field on which traditional fuels and renewables like Solar play. This will make the latter more competitive, and more fairly so. It may also have the effect of quieting those pundits who declare that renewables will never achieve cost parity with fossil fuels, conveniently ignoring those externalized costs that have never formed part of the price of the fuel they favor.
What else does pricing carbon mean?
- Freed from the burden of choosing renewables which don’t reflect so well on the quarterly statement, the market will choose the option that’s better in all respects.
- With more long-term market certainty, investors will be more ready to put money behind renewable energy projects.
- With more money available in the renewable sector, there will be more funding for R&D and more motivation for innovation.
- The field of energy efficiency will also benefit, since the growing awareness of energy options will bring with it a greater understanding of the value of energy conservation.
- With renewables coming on-line at market rates we will, at long last, have a foundation on which to build a strong defense against climate change.
How Do We Price Carbon?
A straight tax. This has the advantage of being simple and straightforward, with no wiggle room for creative corporate accountants. The simplest version would be a large tax levied at an ‘upstream’ point, such as the point where the carbon first enters the economy: the port, the pipeline, the mouth of the coal mine. This would, of course, raise the price of power to the end-user, but this could be offset by returning money to individuals through reduced payroll taxes or other means. And by making personal adjustments - driving more efficient vehicles, conserving energy, making more sensible choices over energy usage - individuals could make net savings. Also, the supply side would clearly be motivated to shift its energy portfolio away from carbon to reduce its operating costs.
Problems associated with imposing a tax include, needless to say, the proverbial unwillingness of politicians to do so. In today’s combative political climate, the idea itself may be enough to send hordes of them scurrying back behind the barricades. And if the object is to reduce carbon emissions, a tax is only an indirect way of achieving that. It could result in people simply paying the extra charges without modifying their behavior; that would mean an increased cost of living and no reduction in emissions. A more direct method would be a government-mandated cap, which we will look at next.
Cap-and-trade. This method, under which the government sets an overall cap on the national level of CO2 emissions that declines over time, has been the subject of fierce debate for years. It surfaced in the House-passed energy bill a year ago, and a different version of it has been included in the Kerry-Lieberman ‘American Power Act’ recently released to Congress. With cap-and-trade, businesses would receive emission allowances; those firms that could reduce their emissions more efficiently could sell unused allowances to those who couldn’t. This produces an income stream, an incentive to pollute less, and a cost burden to those who don’t reduce emissions. The trouble with this system is its very complicated nature and lack of transparency, and consequent potential for being gamed for profit by those trickily creative accountants.
Cap-and-dividend. Speaking of the Kerry-Lieberman bill, this 987-page piece of legislation contains a variant on the cap-and-trade scheme known as cap-and-dividend. This would auction emissions allowances and return most of the auction proceeds to individuals, in a similar way to that described under ‘A straight tax’ above. It’s taken from another bill, the CLEAR Act co-sponsored by senators Cantwell and Collins, which found little favor in Congress owing - so it’s reported - to its brevity and simplicity; (it seems the lawmakers couldn’t take a bill seriously that only ran to forty pages).
The CLEAR idea is to cap the carbon upstream, at the economy-entry point, and auction emission allowances only to the limit of the cap. 75% of the revenue thus collected would be returned to the public, much of the remainder to be invested in carbon-reducing technologies. The notion has great promise, which is one reason why Washington insiders - or the more cynical among them, perhaps - give the entire bill very little chance of passage.
A Renewable Energy Mandate. Some 29 states currently have such a beast, alternately known as a renewable portfolio standard, a renewable electricity standard, or words to that effect. A national mandate would specify percentages of the annual output of power companies throughout the country that would have to come from renewable energy: a good target would be 25% by 2025. This would, effectively, be the same as putting a graduated price on carbon, in that it would create a growing market for clean energy, both utility-scale and distributed. It should go without saying that such a mandate would have to have a good set of teeth, but the dismal fact about many of the state mandates is that they don’t.
The way in which carbon is priced is subject to argument about effectiveness, political realities and impact on the economy. That it must be priced is not at issue. It’s the only practicable way to move down the cost-learning curve with renewables, getting solutions like Solar down in price and up to scale.
Not Invented Here
We would do well to survey what other countries have done in this field. We would see, for example, that the British are well advanced in their plan to power almost the whole of their capital city with wind power. We would see that the Germans have a highly profitable cottage industry that pays individuals to sell their solar power to the utilities. We would see that the Danes export more wind turbines than any other country and have an unemployment rate of about 2%.
All these countries have carbon taxes.
All these countries have come to understand that using public policy to decrease the use of what’s poisoning us and increase the use of what’s clean and renewable is, in a word, the future.
And we need to wake up and smell the carbon.
May 28th, 2010 at 3:54 pm
Can I send this article to my congressmen?
May 28th, 2010 at 4:46 pm
By all means!
To send it electronically, the URL is
http://www.solar-nation.org/2010/05/28/the-price-isnt-right/
May 28th, 2010 at 7:23 pm
The entire world is on the verge of economic collapse. Instituting a massive new tax at this time will do nothing but accelerate the collapse. Those of us in the solar or renewable industries may benefit in the very short term, but we would all suffer long term. Spain has lost 3 jobs for every one green job created - their unemployment is 20% and they are abandoning their incentives. Germany is now looking to rework their feed-in tarrif rates. All the major economies are running unsustainable deficits and nobody has ever been able to tax their way to economic stability. The more vibrant the economy, the more demand and economic resources there will be, to continue moving forward in more sustainable power generation. Robust economies and demand are what will ultimately increase demand and competition, and bring costs down. Look at any of the innovative technologies of the last century, and you will see this model repeated over and over.
May 29th, 2010 at 1:01 am
We need to take this BP incident in the Gulf of Mexico and run with it for Solar and use it as a launching pad for Solar. I always think of all the problems renewables can solve, like our energy dependancy and unemployement.
May 29th, 2010 at 10:56 am
Problem is too many “smart” people chasing their own agenda’s and not enough “wise” people looking for practicle solutions that only deals with facts!!
May 29th, 2010 at 6:43 pm
Wonderful article. Unfortunatly Congress will remain a fence sitter until the American people give it a sign that we support capping CO2 and are ready to reduce our fossil fuel consumption. At this point in time I see no indication that our consumption addiction will be given up willingly. While the end of cheap oil will eventually drag us kicking and screaming into the real world, the damage we have wrought will be felt by future generations for centuries, God help them.
June 4th, 2010 at 11:15 am
I agree with th fact that Solar,wind and thermal enrgies will be our saving grace. We can’t get off of The Browns- oil and Coal because there isn’t enough money to line the pockets of the Congress yet. We know the reaons why the oil and coal insustries basically regulate themselves. Isn’t this a conflict of interest? in a Democracy? who is maning the store??? Look at the Banks, Legal System,Wall Street, all these sytems are in virtual “TILT” and “Self destructing”. I am afraid our country may also be going down with this SHIP.
Its a shame that we have to have disasters like the ones in these industries mentioned above, to wake us up! we have to be destroyed first before we act. This is INSANE— let’s give property tax breaks, Fed tax credits, ease residential zoning codes to allow solar panels, put money into solar tech into the colleges so we can hire our own US citizens to produce,istall and service solar energy.
This makes too much sence or the average oil and coal polluter, get the miners out of those hell holes, stop poisoning our drinking water in “Appalachia” and get the miners jobs producing solar panels and installing them too.
Clean and No “Black Lung Desease” too.
Really, let’s wake up before ts too late…
“God Bless Renewable Energy”.
June 5th, 2010 at 2:30 am
In AZ, the HOA’s cannot stop you from putting solar on your roof:
http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=AZ07R&state=AZ&CurrentPageID=1
Some of us here in AZ realize that this state must move forward in creating electricity from the sun.