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When It Comes to Government Subsidies, Dirty Energy Still Cleans Up:Small World by Charles Kenny

October 21, 2012

Oct. 21 (Bloomberg BusinessWeek) -- The Oct. 16 presidential town hall debate featured Mr. Romney and Mr. Obama facing off on who was really Mr. Oil or Mr. Gas or Mr. Coal. Neither candidate even mentioned climate change. And while President Obama did refer to renewable production, solar got short shrift—doubtless because of the fracas over now-bankrupt thin-film solar manufacturer Solyndra, which had received loan guarantees as part of the stimulus bill.

That’s a shame, because the reason panel production has moved from such countries as America and Germany to China is because prices have dropped and production has become a commoditized, high-volume enterprise. That may be bad news for Western manufacturing jobs, but it’s great news for the global environment, consumers, and even American energy security. In fact, if we had a level playing field, where neither fossil fuels nor renewable energy received favorable regulatory or subsidy treatment, solar would be increasingly competitive. Mr. Coal would be going home, and Mr. Sun would be coming out to play.

Global subsidies for oil, gas, and coal amounted to $409 billion in 2010—compared with $60 billion for renewable energy that year. Cutting those subsidies would be economically efficient, reduce overall energy consumption, and level the playing field with renewable power. The International Energy Agency suggests that removing fossil fuel subsidies would reduce carbon dioxide emissions by as much as 2.6 gigatonnes a year by 2035. That’s half of what’s required to prevent the planet’s average temperature from increasing by two degrees centigrade or more per year.

It’s true that rich countries have removed most direct subsidies on fossil fuels (Saudi Arabia, Russia, and Iran are the biggest offenders), but indirect subsidies, such as tax breaks and favorable access to land, are still worth $45 billion to $70 billion in the OECD club of rich countries—or about the same as the global total for renewables subsidies. For example, noncompetitive auctions of coal mining rights in Montana and Wyoming’s Powder River Basin alone may have cost taxpayers up to $30 billion over the past 30 years (about 60-fold the cost of loan guarantees to Solyndra).

Meanwhile, a recent report from the U.N. Industrial Development Organization notes that photovoltaic module prices have been falling at a rate of 15 percent to 24 percent a year for some time. In 2011, factory gate prices for crystalline-silicon photovoltaic modules fell below the $1-per-watt mark, often regarded as the point of “grid parity” for solar power. Earlier this year, they reached 85¢.

The “levelized cost of electricity” for solar, a measure of the average price of power over the lifetime of a power project, has fallen from 32¢ per kilowatt hour in 2009 to 17¢ in early 2012. These declining costs are a major factor behind an explosion in use. A report by the Natural Resources Defense Council calculates that from 2006 to 2011, wind, solar, geothermal, tidal, and wave electricity production increased from 1 percent to 2.7 percent of total US production, from 0.1 percent to 1.5 percent in China, and from 5.3 percent to 10.7 percent in Germany. One sunny Saturday in May 2012 saw Germany produce nearly half of its electricity from solar. Given the long life of power plants—often measured in decades—this rate of change is phenomenal. Again, five years ago, total global photovoltaic capacity was just 16 gigawatts. In 2011, the world added nearly twice that—29 gigawatts—of new capacity.

If countries priced carbon dioxide emissions from power plants somewhere near the cost they impose on the global environment, renewables would be overwhelmingly attractive. But imagine if governments just got rid of the direct and indirect subsidies that big fossil enjoys—from retail price support through strategic oil reserves, and below-market costs for drilling and mining rights to tax incentives for exploration, drilling, and leasing equipment. The removal of unfair competition would make renewable energy, including solar, the financial winner in ever more investment decisions.

The rapid advance of cost parity in solar production highlights the folly of slapping 30 percent tariffs on Chinese solar panel imports, as the U.S. Commerce Department recently did. The U.S. is blessed with a geographical location that is far sunnier than those of countries such as Germany, yet the U.S. still lags considerably behind them in the production and use of solar power. Rather than spending time making solar panel imports more expensive, why not save money, the climate, and natural security concerns by taking on Big Fossil instead?


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