Energy change subsidies that work......

Today’s post: Wednesday, 12-31-2008

The Obama administration will do a good deal more than previous ones on installing more renewable energy generation.

Candidate Obama already said he would do so and has said so even more emphatically now that he is President-elect.

And, he has already suggested adding a massive energy conservation and weather stripping campaign for homes as a way to get people involved and to provide needed jobs right away.

Further, the Congress finally passed and President Bush signed an extension of the solar and wind energy incentives.

These steps will help us build more renewable energy sources. And, there is already some support for building large scale wind, solar thermal, and solar photovoltaic electricity generating plants in good locations and adding the new transmission lines needed to get this new electricity to the business and homes that will use it.

However, some thought needs to be given to making further subsidies help create self-sustaining renewable energy and energy efficiency businesses that do not need subsidies.

We close today’s post with some ideas on how to do that.

And, it is very important NOT to give subsidies to renewable energy methods that cause clearing of forests or taking over agricultural land or which require as much fossil fuel input as the renewable energy output achieved.

The subsidies for corn derived ethanol seem to have done all of the above—most unfortunately.

Subsidies WOULD make sense for research into biofuels that do the reverse of these things by using cellulosic ethanol from existing agricultural waste etc or by using algae tanks that can be located on land NOT used for farms & NOT on land which now has forest. And, funding for venture capital firms to help commercialize such efforts that turn out to work and be cost competitive.

(There ARE already companies and researchers working on such biofuels.)

By adding the biofuels from the successful efforts of this kind to some petroleum based fuels and some fuels made with pollution free conversion from coal while learning how to substitute electricity and/or energy efficiency for some fuel, we can continue having liquid fuels as needed while dramatically decreasing our oil use and eliminating the burning of coal to generate electricity.

Here’s how we can get to a renewable energy economy that is self-sustaining without the need for further subsidies.:

A. Renewable energy is already almost cost competitive or is so IF the capital cost of installing it can be covered and there are some current incentives in place we can make progress toward the massive installations of renewable energy we need.

We have the incentives in place. And, where needed they can be extended in the short term.

But some kind of Renewable Energy Funding group that could be set up (similar to that set up for FHA Real Estate financing to allow more people to become homeowners or like the SBA loan guarantees we have now that help businesses start or expand) that would act as a catalyst to homeowners, businesses, and utility companies installing new renewable energy sources.
This kind of financial entity for building the new transmission lines and for helping utilities add large scale renewable energy sources will be very important to do. Many states are already asking utilities to add such renewable energy generation and should require more. BUT, without the financing available, it won’t happen and cannot happen. So this government funding source is one kind of subsidy I think is critically important.

Also, a very critical policy is to require that all utility companies in the United States buy back renewable energy in excess of current demand by homeowners or businesses that are on its grid at market rates. In many areas now, you can zero out your utility bill in many months of the year if you have wind or solar generation; but your utility gets any excess renewable energy you produce beyond that free. This is a DIS-incentive to build and install renewable energy sources that should be immediately and permanently halted everywhere.

B. Then once we get started building more renewable energy it will gradually become clear how to incentivize the continued expansion of the renewable energy we need even more in ways that make sense. Providing capital to venture firms to expand renewable energy companies that are cost competitive with fossil fuels and profitable while continuing to catalyze the building of renewable energy with a federal financing arm for it will probably make sense.

C. We should begin to lightly tax all fossil fuels while their cost is temporarily low AND to give back the people and businesses taxed most of those funds to enable them to use less fossil fuels by taking energy efficiency steps or by building renewable energy sources as substitutes.

D. THEN, once all this is in place and there is an expanding base of energy efficiency actions and renewable energy sources, we should start adding restrictions and taxes on fossil fuels until their market cost is at least equal to the true overall lifetime cost of using them.

Roughly speaking that means that the delivered cost for natural gas would at least double; the delivered cost of fuels based on petroleum would go up four times; and the delivered cost of coal to be burned directly would go up ten times; and it would be gradually discontinued to be allowed at all.

The good news is that even in the initial stages, as the taxes increase the cost of fossil fuels and the new technologies and economies of scale begin to make renewable energy cheaper to use than fossil fuels, we will begin to get the massive expansion of renewable sources we need. The renewable sources will cost less and make the providers profits with no further subsidies needed.

Since we now rely on these fossil fuel sources for a huge amount of our transport, heating, and electricity generation and a huge part of our economy and existing jobs is connected to them, it’s also important that we may a huge and growing start with renewable sources and energy efficiency FIRST-- AND make these tax increases and restriction gradually to protect our economy.

That said, I think the process should be set up to be done in no more than 30 years. The taxes can be light until renewable energy costs less; and then moved gradually to very high as renewable replacements are brought online.

If all of the above steps or something very like them are taken, I think we can not only transition to an energy efficient and renewable energy economy and phase out of most use of fossil fuels but also do it with little harm our economy at first and a MUCH stronger and sustainable economy later.