Saturday, December 22, 2007

Incentives and Solar Energy

Reuters features a story about a correspondent in Germany who has installed solar panels on his roof, and is paid by the electricity company at an artificially high rate for the electricity he harvests. From the article:

"Thus, those with no solar panels are subsidizing those who have them. I'm not sure that's fair. But it's the law."

Is this an effective way to reduce CO2 emissions, and should the United States try to follow suit?


Zachary Piso said...

Finally, environmental economics. Something I can sink my teeth into.

First of all, let's not pretend this is something new. Arguably, you could say that all of us with nice, small cars (or nice small hybrids-if I see another hybrid SUV that uses the same amount of gasoline per mile as my '96 Accord I'm pulling them over) are subsidizing the people driving Hummers and the like. Look at health care premiums. In Pennsylvania alone, respiratory illness resulting from smog corresponds to something like 500,000 cases of disease annually. The insurance companies spread the costs over the entire insured population, despite the fact that the heavy drivers in their heavier vehicles are causing most of the damage.

Also, gasoline prices (and I don't mean to focus on petroleum, just fossil fuel energy vs. renewable energy-i.e. solar panels) are artificially low. For those libertarians out their who think prices are high due to taxes, consider the amount of tax money spent to compensate for a petroleum based economy-environmental costs (oil spills, planting trees, global warming damage), higher health care premiums, protecting foreign sources of oil, and most ironically, subsidies for oil companies left over from the 70s and 80s. So I personally see nothing economically unethical about setting renewable energy costs artificially low with subsidies. In fact, it is almost unethical not to, unless one is to remove all of the incentives to use oil.

If you have any specific questions concerning subsidizing, I'd be glad to elaborate further, I just feel this section is already a bit lengthy.

Now, should the United States develop a similar policy. Yes; though I feel it's extremely complicated. Consider the Kyoto Protocol, which aspires to a global greenhouse gas emission reduction of some 10-15%. Unless we want New Yorkers swimming down Broadway, we need an 80% reduction in the next 50 years-and that's a conservative estimate. So the Kyoto Protocol may help, but it might also promote a false signal that things are already moving in the right direction, when in fact they are not.

So, if these incentives were part of a holistic, bottom up approach, it would be relevant. Otherwise, it would send a false signal. Ultra-lighting vehicles would do wonders for the national use of petroleum, along with cutting down on agricultural monocropping subsidies (monocropping requires energy intensive fertilizers which traditional agriculture avoids). Neither of these even concern alternative energy.

If the US wants to emulate Europe, try letting gasoline prices align with gasoline costs. This should appeal to the libertarians out there. Artificially high demand corresponds to artificially low price. Both should become more realistic.

Pete Abbate said...

Ultra-lighting vehicles - how would you go about doing this? Would you enforce government legislation requiring new cars to be under a certain weight? Can the weight vary based on the type of car (otherwise, would you be simply disallowing SUVs)? My car is 15 years old, would I no longer be allowed to drive it, or would you have a grandfather period, or would you create extra incentives to get people to upgrade to ultra-lights?

Jean said...

Raising energy prices to keep people from using as much electricity is thought to be effective. It may take a long time because businesses sometimes simply pass the costs on to consumers and there is wiggle room to do that.

Generating electricity for a return is like having a business. People need to know the costs and risks, the benefits, how much competition there is, etc. Solar panels are interesting, but they generate high voltages of direct current. This may not be safe in areas with high winds, or near children. If the electricity is not sold to a company at the moment it is produced, batteries are needed to save it. Further, compared to the huge amount that many houses use, it might be more effective to simply change the light bulbs and get energy efficient appliances. Businesses have other needs. Sun can also be used as a direct source of heat (see for ideas). THis is more efficient when combined with water walls and other materials.

Solar panels are one small solution popular right now. Larger projects, see the company, Ausra, are also developing. I think that tax dollars could be more effectively spent helping people to make designs and repairs to make their homes energy efficient--especially with regard to heating and cooling. Right now, much housing is usually built in standard, safe designs that work for tracts, or the houses were built before as much was known as is known now. It is easier to start with a new house because of the importance of materials, e.g., concrete and water, and light.

Zachary Piso said...

One technique used in Denmark right now is "feebating", which is using a combination of fees and rebates to provide incentives to environmentally friendly vehicle owners and disincentives to people that don't. Also, government run collection programs that offer rebates on the purchase of new, ecofriendly cars have been successful in Europe.

I like both of these plans, and don't believe that the transition need be immediate. Considering ultralighting can cut fuel use by 2/3's, even a gradual change will see quick reductions in fuel use. Concerning whether you'd be allowed to drive your car (which reminds me of the car commercial where the family pushes a boulder onto their automobile for an excuse to get a new car), I really don't think any politician will ban the driving of quality vehicles such as yours.

Finally, on the concept of weight classing, I believe standards would likely differentiate, to allow for consumer choice. However, it bares noting that some European country's charge a very high tax on SUVs and similar vehicle builds, hence discouraging their purchasing. Henry Ford put the idea best--"You can have any color car you want, as long as it's black."

Josh Knox said...
This comment has been removed by the author.
Josh Knox said...

I would be interested to see the numbers on subsidies that go to oil companies. How much does the federal government pay out to oil companies and how much does the government take in through the gas tax? I am also curious where an accurate number of the respiratory illnesses in Pennsylvania caused by smog can be found.

"Feebating" seems like an example of a pigouvian tax. I'm not sure if I would support it, maybe I just don't understand what "ultra-lighting" America's vehicles would entail.

Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty