2008-01-30

Why feed-in tariffs are a bad idea.

I'm a member of Greenpeace. Have been since my teens. They've just sent me an email on energy policy in which they say call for a Feed-in Tariff (FIT). Bad idea, and here's why.

The problem we've got is the emission of greenhouse gases. Therefore we should make it more expensive to emit greenhouse gases, preferably using a carbon tax. The two main problems with the FIT are:
  • It only affects electricity consumption, which is not the sole cause of CO2 emissions.
  • It subsidises a particular solution (renewable electricity).

I believe that it's the job of government to increase CO2 emissions costs, and it's the job of the market to find ways of avoiding those costs (a complex mix of reduction and renewables).

3 comments:

  1. FITs are by far the best solution we have for switching to a clean energy system. Having researched this for two years I have found that, every study, every expert, shows this. A carbon tax is not going to happen soon enough to make a difference in the short term. Redirecting investment flows and changing the economics of true renewables is paramount - as is the parallel and complimentary strategy of energy efficiency, throughout our human activities.

    It subsidizes THE solution, not 'a' solution. Nuclear - even if it was a benign technology - could not be built fast enough, at low enough cost to make an impact.

    It may well be the job of government to increase emissions costs - but no government is capable of doing this unilaterally, and there are zero indications that this will be done at supranational level.

    Feed-in tariffs engage citizens, businesses, community groups, farmers and corporates in taking action on climate change - both immediately, and with clear long-term consequences. FITs are a solution for now, and should be supported wherever possible.

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  2. Thanks for your comment Miguel!

    You say that a carbon tax isn't going to happen soon enough. Why? Implementing a CO2 tax is much easier and therefore quicker than with a FIT. The points where fossil fuels enter the country are few, which makes taxation easy, and there is no administrative burden on the renewable generators. In contrast, with FITs the administrative burden in demonstrating renewableness is huge, and falls entirely on the renewable generators. We've seen this problem with ROCs which are terribly onerous.

    You also say that FIT subsidizes THE solution. It's wrong to say that the only solution is renewables. The other option is to simply not use the electricity in the first place. Under FITs the higher cost of brown electricity goes to subsidizing renewables, under CO2 Taxback the money goes back to the people to spend as they wish. People would be more able to afford to insulate their houses for example.

    Lastly, FITs don't address the other sources of greenhouse gases, whereas a carbon tax does. Presumably you'd have other schemes to deal with these. The problem with this approach is that you end up with a cost for transport emissions that is different from the cost of emissions from power stations, which leads the consumer to make irrational choices.

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  3. Whilst I agree that it is right to implement polluter pays mechanisms such as carbon tax, it is incorrect to determine this as an either/or issue. If you subscribe to the basic principle that we must also replace our current use of fossil fuel with a suitable alternative (whether it be for reducing greenhouse gases and/or because of our pending energy crisis), then energy from renewables is the inevitable solution (yes, there is possibly nuclear, but that brings with it a host of problems which I shall not address here, not least of all that it does not have the capacity that renewables, and in particular energy from the sun can give us - just look at Concentrating Solar Power for instance; less than 1% of the worlds deserts can give sufficient energy for the world's needs. Electricity derived from CSP can of course also be used for transport, heating, cooling and indirectly desalination. The possibilities are enormous. To read more on CSP visit http://www.trec-uk.org.uk).

    So, how to implement a policy that supports renewable energy? For specific renewable energy technologies to succeed, well-conceived government intervention is required. Without legislative assistance, renewables are unable to compete - simple as that. We are, afterall dealing with a historical energy system predicated on the use of fossil fuel. New mechanisms need to be implemented to open the door to renewables being included and indeed in time taking over completely.

    FIT's are a specific market mechanism to facilitate non-commercial RE technology to become commercialised in as fast as time as possible. In other words, take it to mass production levels where it can stand alone. It is well established that FIT's are the most effective, cost efficient and transparent system to facilitate not only introduction of RE into the marketplace, but also to promote homegrown industry in the sector. This is clearly demonstrated in all countries that have successful FITs, eg Germany, Spain.

    One aspect of FIT's that is often overlooked is that they place a legal obligation on the utility to buy-in the renewable electricity (at a set price). This is of course absolutely key. Without this legal obligation, business as usual would prevail with the utilities.

    To read more about FIT's you may care to look at
    http://www.onlinepact.org/

    Time is short, the world needs to move fast to shift to a renewable energy system. Yes, carbon taxing will come, but it will take time - there is an almighty lobby out there fighting against this, and even if implemented, will take some time to reach a reasonable level (and a level that accurately reflects the true cost of externalities). We need FIT's now - not just in the UK where ROC's have proven utterly inadequate (and are not supported by the electricity regulator Ofgem) - but also at EU level and globally. Very few countries have even the the basic foundations of a renewable energy policy, and of those that do, it is those with FIT's that are succeeding in reaching their targets and will continue to successfully progress.

    There are various books on RE and potential policy, but one I particularly recommend you read is Feed-in Tariffs, Accelerating the Deployment of Renewable Energy, written by one of the foremost experts in this area, Miguel Mendoca.

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