Germany, once the world’s leading market for solar power, is pulling back its subsidies.
Q Cells (QCLSF.PK), 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 geoenginee
ring 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].
Marc Gunther writer for Fortune, GreenBiz and Sustainable Business Forum co-chair, Fortune Brainstorm Green 2012 and a blogger at www.marcgunther.com. His book, Suck It Up: How capturing carbon from the air can help solve the climate crisis, has been published as an Amazon Kindle Single. You can buy it here for $1.99.