Peter Jones - April 30, 2012

Subsidies for Renewable Energy under attack

Most electricity is currently generated from fossil fuels.  The “market pricing” of this electricity takes into account generation and transmission costs, including the price of the fuel.  Environmental costs are included to a degree, but not potential costs of global warming attributable to the emission of Greenhouse Gases (GHG).  Without including these future costs, electricity generated by fossil fuels will inevitably be cheaper than electricity produced by renewable sources.   Weaning consumers and industry away from fossil fuels will not happen overnight, and not without government intervention.

Governments have reduced GHG emissions by imposing regulatory standards requiring higher efficiency from the use of fossil fuels, such as the standards imposed on automobile manufacturers.  Governments could demand the sequestration of GHG emissions at source, by technologies such as carbon capture and storage.  These improvements would improve but not solve the fundamental problem of the contribution of GHG emissions to Global warming.

Governments have encouraged the generation of electricity from renewable sources by feed-in tariffs, a form of subsidy.  Today’s Globe & Mail has a column that emphasizes the burden on consumers and businesses that pay higher costs because of these subsidies. The column is principally based upon a recent report by the Fraser Institute that highlights the lack of success in shifting the generation of electricity to renewable sources.  The column focuses on the negative, referring to Germany’s difficulty with solar power subsidies, but does not mention its progress with subsidized wind power.

Governments could also impose a direct tax on carbon fuels that would make energy from renewable sources more price competitive. Governments can also institute an emissions trading scheme that rewards those industries who reduce their demand for fossil fuels, and  penalizes those industries who cannot keep within the state-imposed limits of fossil-fuel consumption.

Unfortunately taxes are very unpopular with voters, and n government do not get re-elected by promising to raise taxes (except on the rich!).  Emissions trading schemes are cumbersome, bureaucratic and out- of – favour with industry.  Whatever voters choose as between these alternative – if this ever happens – is a long term proposition.

With the difficulties facing political action, the Fraser Institute Report understandably supports of a market based solution.

“”It simply costs more to generate electricity using wind or solar power. Consequently, consumers and businesses can all expect to pay significantly more for electricity in the coming years. Instead of mandating specific types of renewable power, governments should follow a market-based approach to determine the best mix of electricity-generating technologies.”

Another Fraser Institute report that comments on government subsidies concludes:

“Long  term solutions are needed to address Ontario’s escalating electricity prices, such as walking away from the feed-in tariff program.”

The Institute recognizes a long-term solution to electricity prices is necessary. But this long–term solution must also address GHG emissions.  These GHG solutions ought not to be discarded on the basis of their short term performance.

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