Copyright 2001 Federal News Service, Inc. Federal News Service
May 3, 2001, Thursday
SECTION: PREPARED TESTIMONY
LENGTH: 5707 words
HEADLINE:
PREPARED STATEMENT OF JOEL DARMSTADTER RESOURCES FOR THE FUTURE
BEFORE THE HOUSE COMMITTEE ON SCIENCE
SUBCOMMITTEE ON ENERGY
SUBJECT - THE ROLE OF
RENEWABLE RESOURCES IN U.S. ELECTRICITY GENERATION EXPERIENCE AND PROSPECTS
BODY: The use of fossil energy is by
far the largest source of human-induced CO2 emissions in the United States and
worldwide. This fact has stimulated interest in the development and deployment
of lower- emitting renewable energy resources, or "renewables" (see Box 1). The
United States has been developing and advancing renewable energy technologies
for more than 20 years to ease problems--actual and anticipated--that arise from
the use of fossil fuels. Nevertheless, the penetration of renewables remains
minuscule, and many technological, economic, and regulatory uncertainties still
persist in U.S. renewable energy markets.
In this
paper, I focus on nonhydro renewable energy resources for generating electric
power. Unless otherwise indicated, by renewables I refer to wind, photovoltaic
and thermal solar, biomass, and geothermal sources. A broader definition would
also include agricultural residues, municipal and industrial wastes, and other
combustible materials. As customarily used, the term "renewables"--which implies
the possibility of replenishment of what is taken from the relevant resource
stock--is more convenient than precise. Thus, geothermal resources are, strictly
speaking, exhaustible because a given site may lose useful heat after a number
of years of extraction.
I consider three aspects of
renewables. First, I concentrate on the use of renewables in electricity
generation, where an expanded role for renewables probably has greatest promise
for CO2 displacement over the medium term. Second, I largely consider
developments in the United States, whose experience with and potential for
renewables use in the electric power sector parallel the situation in numerous
other industrial economies. Finally, and perhaps most importantly, my discussion
is conditioned by the view that the role and prospects of renewable energy can
be sensibly assessed only within an economic setting that considers a range of
competing energy technologies and sources, both renewable and conventional. An
electron is an electron, whether produced by a wind turbine or coal-based steam
generator. What matter most are three issues: actual and expected market
realities (that is, cost and price), the extent to which the market captures or
masks imperfections brought on by environmental externalities and other
distortions, and the role of public policy in promoting socially beneficial
outcomes.
**********
Box 1 --
CO2 Emissions from Renewable Energy Sources
Subject to
three provisos, one can intuitively, and for the most part legitimately, view
CO2 emissions from the use of renewable energy as inconsequential. First, it
takes energy to produce energy-using capital stock--a coal-burning power plant
or a photoelectric array. This aspect is unlikely to alter the balance of
advantage of renewables over conventional energy from a CO2 standpoint, but it
needs to be recognized.
Second, the production of
renewable energy inputs itself may involve fossil fuel emissions. For example,
carbon emissions associated with a possible "hydrogen economy"--such as the use
of hydrogen as the basis of automotive fuel cells - would be negligible only to
the extent that fossil fuels play little role in the production of hydrogen. It
would not be the case if fossil-based electricity were used in the electrolytic
extraction of hydrogen from seawater.
The third and
probably most important proviso has to do with the use of biomass as an energy
source. Combustion of biomass, largely in the form of wood and wood wastes, has
accounted for a bit more than 3% of total U.S. energy consumption in recent
years. Such combustion releases CO2 at a rate (carbon release relative to the
heat content of the fuel) that is even greater--by around 15%--than that of
coal. To the extent that such release is matched by new and equal biomass
growth, then biomass fuel use is an effective CO2-mitigating option. As long as
statistical treatment is internally consistent, it might not make much
difference whether CO2 emissions from biomass combustion are shown as nil on the
assumption of being netted out by equal photosynthetic uptake or whether the
estimated releases are part of (gross) nationwide emissions, with the assumed or
estimated uptake separately shown as a component of total sequestered CO2. The
least satisfactory--and unnecessarily confusing--way of handling the matter is
that provided by the IPCC's Working Group II (see Data Sources). In one table,
the use of biomass in a power plant is illustrated by indicating zero emissions
(Table 19-2); elsewhere, an emission factor for wood is given as approximately
28 metric tons of carbon/1 billion Btu (Box B-2). I prefer the second of the two
measurement options, particularly given increasing interest in present and
prospective interrelationships among deforestation, afforestation,
reforestation, and productive use of biomass combustion worldwide. These
interrelationships are especially important to consider in a context of
potential competition between biomass products (crops and forest products) and
fuels markets. But for now, on the assumption of reabsorption and no net change
in the overall carbon budget, the statistical practice by the Energy Information
Administration is to treat U.S. CO2 emissions biomass fuels as 0 (rather than,
for example, adding their 75 million tons to total U.S. CO2 emissions of
approximately 1,500 million tons in 1996 to reflect gross emissions from
combustion of all fuels).
**********
A Word on Renewable Energy Worldwide
Although
my principal focus is on the United States, it may be helpful to put things into
a global perspective. (Quantitative observations are based on references listed
under Data Sources at the end of the paper.) In terms of energy consumption in
the aggregate (not only resources going into electric power generation), the 7%
of the worldwide total accounted for by renewables in 1995 was of some
significance; it was almost identical to the nuclear energy share. In poorer
regions of the world, the percentage was markedly higher. In Africa, for
example, renewables (dominated by wood and other biomass) contributed 37% of
total energy. But far from reflecting a productive and sustainable role for
renewables in the contemporary and prospective energy scene, such numbers in
fact signify something quite different in desperately poor parts of the world:
the need to gather energy, through foraging and other means (contributing to a
loss of soil fertility in the process), to meet the most basic survival
requirements of cooking and heating. The statistics constitute an artifice in a
related respect, one which gives an altogether distorted picture of renewable
energy use in the African example. As a metric, the British thermal units (Btus)
contained in a lump of coal may be comparable to the Btus contained in a cubic
meter of firewood. But because the latter is typically burned with incomparably
worse efficiency, its effective importance recedes greatly. In the electric
power sector, the focus of my discussion, statistics are probably somewhat more
meaningful, because the mere fact of renewables serving as an input into power
generation implies a more sophisticated technological application than, say,
their use in open fireplaces in rural households.
In
any case, it turns out that only about 1% of worldwide electric generation is
based on nonhydro renewable resources. Around 80% of such generation occurs in
North America and Western Europe. In developing economies, whose share is
essentially nil, the use of renewables for electricity production seems to be
limited to a few opportune circumstances, such as the exploitation of bagasse
(agricultural waste) as a boiler fuel on sugar plantations. Probably for that
reason, renewables account for approximately 3% of Brazil's electric generation.
For now, therefore, the rational exploitation of renewable energy poses entirely
different challenges for developing and developed countries.
The Prevailing Role of Renewables in U.S. Electricity Generation
Table 1 provides a broad perspective on how renewables fit
into the present fuel and power picture in the United States. It is immediately
apparent that the magnitude of renewable energy is negligible on the national
level. Few nonhydro renewables figure in electric power generation. And outside
the electric power sector, the balance of renewables use is concentrated in
industrial biomass utilization--much of it undoubtedly in the form of wastes in
wood processing and in pulp and paper mills. Nor is this picture likely to
change appreciably over the next several decades, at least if the analysis of
the U.S. Department of Energy's Energy Information Administration is to be
believed. Specifically, conventional hydro power generation is projected to
decline a bit (at a rate of 0.3%/year), whereas all other renewables in the
aggregate are projected to grow by around 2% per year--a very small rate of
increase, considering the low absolute values from which growth proceeds.
Table 1. Role of Renewable Resources in U.S. Energy
Consumption and Production, 1997.
Electric generation
(quads) 4.35 Conventional hydro 3.60 Geothermal 0.43 Municipal solid waste 0.23
Biomass 0.04 Solar (thermal and PV), wind 0.05 Nonelectric consuming sectors
(quads) 2.57 Residential wood 0.60 Industrial biomass 1.84/a Industrial hydro
0.03 Ethanol in transportation 0.10 Total renewable resources (quads) 6.92/b
Share of U.S. energy production 9.5% Share of U.S. energy consumption 7.4%
Nonhydro renewable resources (quads) 3.32 Share of U.S. energy production 4.5%
Share of U.S. energy consumption 3.5% Share of electricity generation 2.2%
Note: 1 quad = 1 quadrillion (10/15) Btu. Source: U.S. DOE
(Department of Energy). 1998. Annual Energy Outlook 1999. December. Washington,
DC: U.S. DOE, Energy Information Administration, Tables A1, AI 8, and 8.14.
a About one-fifth of this figure can be attributed to
on-site electric generation at wood-processing facilities.
b This figure excludes about 0.04 quads in nonmarket residential and
commercial applications.
U.S. Policies toward
Renewables
Over the past quarter of a century, several
public policies have been introduced in support of renewable energy. Rather than
providing an exhaustive account of these measures, I will mention and illustrate
four principal ways in which the federal government has sought, or is seeking,
to promote the development and use of renewables: various kinds of research and
development (R&D) support, the role of the 1978 Public Utility Regulatory
Policies Act, the use of other financial incentives, and the prospective role of
a "renewable portfolio standard"
Although federal
policies have dominated, states have presented some significant initiatives as
well. A 1998 report from the Energy Information Administration (see Suggested
Reading) provides additional information about renewables programs. In the
discussion that follows, I will not try to assess--if, indeed, an approximate
quantitative assessment is as yet possible--how these policies have shaped
energy markets.
R&D Support
For various reasons--excessive risks, long time horizons, limits to
capturing the returns from successful outcomes, nonmarketability of external
benefits--industry is commonly believed to underinvest in basic science and
technology. Therefore, a federal role to augment private efforts in advancing
basic science and technology is widely accepted. In the case of renewable
energy, that role largely involves R&D activities conducted at or supported
by the U.S. Department of Energy (DOE) and its national laboratories,
principally, the National Renewable Energy Laboratory (NREL) in Colorado. The
U.S. General Accounting Office (GAO) reported in 1999 that for the 20-year
period 1978-98, $10.3 billion (in current prices) was thus disbursed (see
Suggested Reading). Solar photovoltaics were the leading beneficiaries of this
program. Over the 20-year period, photovoltaics received about $2 billion and
wind power $1 billion. During fiscal year 1999, the respective funding was $72
million and $35 million. In both cases, the GAO sees program objectives having
gradually shifted away from fundamental research to enhanced market
opportunities, both domestic and international. As just one example of a recent
wind power initiative, DOE's Turbine Verification Program has provided for
cost-sharing with utilities to facilitate the development and deployment of wind
turbines.
In critical comments on the GAO analysis
(included in the GAO report), DOE questioned GAO's characterization of a
programmatic shift emphasizing market potentials. Whether GAO or DOE is more on
the mark in this dispute, a chastening point does perhaps emerge. Programs whose
start-up rationale puts major stress on precommercialization challenges--basic
science, research, and early developmental barriers--may, subtly or not, slide
over into terrain dominated by sales prospects. Perhaps unfortunately, the
labels "research" and "development" are broad enough to allow such slippage.
PURPA
The federal Public
Utility Regulatory Policies Act (PURPA) of 1978 was one major instrument
that encouraged a shift away from conventional energy to renewables. Under this
statute, utilities were mandated to purchase power from nonutility producers at
prices that were supposed to represent the "avoided cost" that utilities would
otherwise have had to pay to produce power using conventional resources such as
petroleum. Because numerous beneficiaries of this policy lacked technical
expertise in alternative energy production (renewables and certain other
innovative categories) and because the calculation of avoided cost was
frequently quixotic, PURPA is widely judged to have fallen far short of
its objectives. Contracts for utility purchases under PURPA will soon
begin to run out, but transactions in 1995 still occurred at prices which, for
renewables as a whole, were 150% above the national average electric generation
cost of around 3.5 cents/kWh (see Figure 1).
Figure 1.
U.S. Electric Utility Average Price of Renewable Electric Power Purchased from
Nonutility Facilities, by Energy Source, 1995. (Image not transmittable)
Note: Values are given in cents per kilowatt-hour. Source:
U.S. DOE (Department of Energy). 1999. Renewable Energy: Issues and Trends 1998.
March. Washington, DC: U.S. DOE, Energy Information Administration, Fig. 11.
Other Financial Assistance Overlapping with PURPA,
and continuing to the present, the federal government has provided significant
direct financial benefits to renewable energy producers. Both solar
photovoltaics and wind power benefit from investment tax credits, and under the
Tax Reform Act of 1986, wind power was accorded a depreciation life of 5
years--much shorter than the depreciation life of conventional power supply
investments. One provision of the Energy Policy Act of 1992 (extended in 1999)
provides an inflation-adjusted 1.5 cents/kWh production tax credit for wind
power plants. By 1999, this credit had increased to 1.7 cents/kWh.
Renewable Portfolio Standard
In
the context of the deregulated electricity market that is presently emerging in
the United States, a policy position developed by the Clinton administration
during 1999 embodies provisions for a so-called renewable portfolio standard
(RPS). Its goal is to ensure that some minimum percentage of generation
originate with nonhydro renewable energy sources, regardless of whether or not
it is justified by private market forces. An RPS target for 2010 calls for 7.5%
of electricity sales to be based on renewable energy resources. (Separately,
bills introduced in Congress call for RPS shares ranging from 4% to 20%.) If the
RPS is implemented as presently conceived, the means envisaged for meeting the
7.5% target represent a much more economically efficient route to stimulating
renewables-based electricity than PURPA does. That is because RPS
incorporates a tradable permit system that encourages renewable power production
to take place in the most cost-effective location. In addition, it would impose
a ceiling on the increment to overall electric power costs that result from the
mandate.
By means of various subsidies as well as
surcharges on electric bills to consumers who are willing to pay a premium to
ensure the presence of"green" power in their electricity mix, several states
have introduced renewable minima of their own. It is too early to judge the
success of such efforts. One element of uncertainty is that even if these
measures result in new investments in renewables generation, it is possible that
existing facilities may be prematurely retired due to competitive pressures.
Why the Poor Showing for Renewables?
Despite the optimism regarding the emergence of renewables dating from
the energymarket upheavals of the 1970s, and notwithstanding considerable policy
support over the years, the reality, as noted, is sobering. It is evident from
Table 1 that nearly 30 years later, renewable energy systems have not succeeded
in emerging as a significant factor in the country's electricity infrastructure.
Does this mean that renewable technologies have been such a great disappointment
that continuing public policy support is misguided? To answer in the affirmative
may be too casual a dismissal of an exceedingly complex matter. Evaluation of
the available evidence indicates that renewable technologies have lived up to
several significant expectations and public policy goals.
Several RFF colleagues and I recently analyzed what went right and what
went wrong in the evolution of renewable energy inputs into U.S. electric power
generation over the past quarter century (see the work of Burtraw and of McVeigh
and others in Suggested Reading). We evaluated five technologies used to
generate electricity: solar photovoltaics, solar thermal, geothermal, wind, and
biomass. A principal aim of our study was to see how the actual performance of
renewable energy technologies in the 1990s compared with specific goals of cost
reduction and market expansion of earlier projections. Many groups (both
analytically oriented and unabashedly proactive) that wrote in the 1970s and
'80s had judged these goals to be attainable with the help of accommodating
public policies.
In general, market penetration has
been markedly lower than expected. However, the cost of renewable technologies
has also been lower than projected--in several cases, significantly lower, even
when compared with what seemed initially to be the optimistic forecasts of
renewable energy advocates. Of course, with time, forecasts for the 1990s began
to approach observed trends. Still, whereas 1980s wind power projections of
generation costs a decade hence assumed roughly a 64% decline, to reach a level
of 5.7 cents/kWh by 1995, costs actually declined by an estimated 67% to a level
of approximately 5.2 cents/kWh. (Here and in the paragraphs that follow, costs
are expressed in constant 1995 prices.) By contrast, although the volume of
wind-generated electricity did show steadily rising absolute numbers in the
course of the 1990s (from an almost zero level in the 1980s), it remained an
inconsequential part of the nation's electricity system. Only at the end of the
1990s and in 2000 have we seen signs of some meaningful momentum in wind power
capacity expansion.
One can argue about which of the
two measures (market penetration or cost) has greater relevance in evaluating
the performance of renewable energy resource programs. To the extent that
public-sector support was particularly driven by the need for and pursuit of
cost reductions, the cost outcome seemed to us particularly important. Indeed,
the cost outcome seems quite remarkable, because renewable technologies have not
attracted large-scale investment and production that can contribute to
technological development or economies of scale in production, as many people
anticipated when forming their cost projections. Evidently, the characteristics
of several renewable energy systems--high capital intensity, uncertainty about
interconnections with the electric grid, variability in availability (the
intermittency of wind, sunlight, and biomass wastes)--that have frequently been
viewed as major barriers to economic viability have not precluded significant
reductions in the reported cost of producing power. The failure of renewables to
emerge more prominently in the nation's energy portfolio is intimately linked to
the concurrent decline in the cost of conventional generation. Consider that in
1984, the Energy Information Administration projected nationwide electric
generation costs to rise from 6.1 cents/kWh in 1983 to 6.4 cents/kWh in 1995; in
fact, they declined to 3.6 cents/kWh. That 41% decline, though less
percentagewise than what was achieved by wind power, nonetheless preserved a
sufficiently large margin of advantage--3.6 cents/kWh rs. 5.2 cents/kWh--for
conventional over wind power as to foreclose more than a minute niche for the
latter.
Several factors have contributed to keeping the
cost of generation from conventional technologies low. They include developments
in energy supply markets (notably, the emergence of a more competitive world oil
market and productivity improvements in oil exploration and coal production);
the successful deregulation of natural gas, oil pipelines, and railroads (the
last a major factor in reducing the cost of coal shipping); technological
progress in conventional generation itself (such as combined-cycle gas turbine
systems); and the ongoing restructuring of the electricity industry. Although
changes in the regulation, technology, and market structure of fossil fuels have
thus been mostly beneficial for electricity consumers, they have hindered the
development of technologies for renewable energy resources that have had to
compete in this changing environment. Supporters of renewables have had to fix
their sights on what has so far been a steadily receding target. As noted,
nationwide electric generating costs of around 3.5 cents/kWh in the mid-1990s
constituted a formidable target for even new renewables installations to meet,
let alone for electricity based on renewable energy resources surviving from the
distortions of the PURPA pricing regime. The inflated costs utilities
found themselves having to pay as late as 1995 for such renewables-generated
power are shown in Figure 1. All told, renewables have had to overcome something
of a loser's image amid the favorable trends in conventional energy and
electricity markets and the policy milieu that smoothed the path for those
trends.
Is the persistence of the
renewables-nonrenewables cost gap perhaps even understated when one considers
the subsidies accorded the former? It is a fair question but not easily
answered. Nonrenewables, after all, also receive a number of financial benefits.
Nevertheless, a deeper probing of the extent to which certain tax and accounting
benefits may distort cost comparisons between renewables-based and conventional
generation would be a welcome contribution to the economic analysis of renewable
energy.
Other countries have hardly fared much better
than the United States in the extent of electricity market penetration by
renewables (see IEA in Suggested Reading). A few heavily forested places (for
example, Austria and the Nordic countries) have had some success exploiting
fuelwood resources--aided, in some cases, by extremely favorable tax treatment
and other subsidies. Denmark is developing a notable presence in wind energy.
(It clearly helps when the wind resource and electricity load centers are close
enough to each other to avoid costly transmission costs.) But, as in the United
States, competition has not been kind to investment in renewables projects. And
not surprisingly, competitive realities and policy dilemmas that face the United
States are precisely those that arise when impediments to renewables are
considered elsewhere.
Should Renewables Command a
Premium Price?
Although the high avoided cost formulas
under PURPA and some other financial inducements may have distorted the
evolution of a more robust renewables sector, the notion that green power may
deserve a price premium over conventional power rates is not thereby repudiated.
Energy sources should trade in markets at prices that reflect both their private
and social costs.
There is as well a fairly common view
that energy produced by various renewable systems imposes fewer of these social
(external) costs than fossil-fired facilities--keeping in mind, however, that
the latter have by now been compelled to internalize to a significant degree the
cost of pollution abatement. The question for public policy intended to level
the playing field is by how much various fossil sources should be penalized for
their remaining externalities. This could be achieved through regulatory
surcharges on fossil fuel use or, far less efficiently, through enhanced
subsidies for renewables in recognition of their more benign environmental
impact.
Quantifying external damages is complicated and
controversial; the fact that many environmental impacts vary by location and the
distorting nature of tax rates are just two of many complications. Some
estimates from a study conducted several years ago by researchers at RFF, along
with specialists in the European Community and the U.S. Department of Energy,
are instructive. (See the report by Krupnick and Burtraw in Suggested Reading).
The purpose was to monetize environmental damage throughout the entire fuel
cycle, from resource extraction to final use. Coal was found to impose greater
social costs than biomass (the only renewable resource covered in the analysis).
The difference was reckoned at about 7 mills/kWh (that is, 0.7 cents/kWh) in the
study. However, more than 90% of the differential (about 6.4 mills/kWh) is
attributable to imputed values--however crude---of the impact of increased
global warming from fossil fuel use. This imputed value is on the order of
$18/ton of carbon emitted to the atmosphere, well within the range of plausible
values derived from existing assessments of global warming risks. Nonetheless,
these kinds of calculations are controversial.
Even if
one accepts the estimated externality figures just discussed, the implied
superiority of biomass over coal from an environmental costing perspective is
far below the cost differential between these two fuels that prevails under
current market conditions, as discussed earlier. Even a government subsidy equal
to twice that difference, such as the 1.5 cents/kWh tax credit to wind power,
does not bring renewables appreciably within the competitive range of
conventional energy systems.
Whether a 1.5 cents/kWh
tax credit or any other subsidy to renewables is a defensible estimate of
externalities brought about by conventional energy systems should not blind us
to the inherent defects of second-best ways of righting environmental wrongs. A
system that held fossil fuel combustion fully accountable for its externalities
would be more efficient in avoiding a proliferation of subsidies (hidden and
explicit) and thus a waste of resources. It would also stem the political
temptation to magnify externalities as a means of supporting one's favorite
alternate energy system (see Box 2).
Concluding
Comments
All projections are conditional and inherently
uncertain. One of the less uncertain ones, however, is that--in support of
economic growth, particularly in developing parts of the world-the demand for
electricity will increase substantially for many years to come. Several
references included under Data Sources at the end of the paper show a continued
worldwide rate of increase ranging between 2% and 3% annually for much of the
first half of the new century. (See, for example, the cited studies by the
Electric Power Research Institute, International Energy Agency, and U.S. DOE
International Energy Outlook.)
**********
Box 2 - The Ethanol Charade
Although my primary focus in this chapter is the role of renewable
energy resources in electricity production, it is worth noting how a rationale
for promotion and financial support of renewables-- reminiscent of support for
other energy resources in earlier times--an bring about an uneasy blend of
policies and politics. A good example in the United States is a federal motor
fuels sales tax exemption for producers of grain-based ethanol that works out to
approximately $16 per barrel of oil equivalent. (The ethanol is designed to be
blended with motor gasoline to produce "gasohol," the use of which is believed
warranted seasonally in certain polluted areas.) No one who has observed this
ultra-generous support program unfold and endure over the years has any
illusions about its nature as anything but a political girl to grain processors
and the U.S. agricultural constituency. I mention this as a reminder that noble
sentiments on promoting clean energy may mask motives that are neither clean nor
economically justified by any stretch of the imagination.
President Bill Clinton's Executive Order of August 12, 1999, created a
cabinet-level body charged with supporting a greatly expanded effort to promote
biofuels. In official remarks made then, the President stated, "I am setting a
goal of tripling America's use of bioenergy and biobased products by 2010. That
would generate as much as $20 billion a year in new income for farmers and rural
communities while reducing greenhouse gas emissions by as much as 100 million
tons a year--the equivalent of taking more than 70 million cars off the road."
The initiative may reflect a genuine determination to pursue a sound and
sustained research and development and demonstration program in renewable
energy. But it is too early to say whether, once again, it is farm policy---or
politics--masquerading as energy policy. **********
Whatever else it may portend, this increase should be somewhat
encouraging news for renewables: a growing electricity market, facilitation of
scale economies, and movement up the learning curve are necessary if
insufficient conditions for greater penetration of renewables. Depending on the
extent of policies implemented to limit fossil fuel use out of concern over
climate change and the possibility of rising costs of petroleum (a source of
anxiety in some quarters), the attractiveness and viability of renewables may be
strengthened.
But progress on the part of more
traditional energy systems is sure to parallel further development of
renewables, and there is no reason to expect that dynamic state of affairs to
flag in the future. (On this point, see the views of Bradley under Suggested
Reading.) Thus, for example, even as the size and technology of wind turbines
improve and their costs decline, other systems aren't standing still. Efficient
combined-cycle gas turbines seem rapidly to be becoming the configuration of
choice in new utility plants. Fuel cells, other distributed systems of power
supply, the emergence of advanced (and publicly acceptable) nuclear technology
(even if presently unlikely), and across-the-board realizable improvements in
energy efficiency are all possibilities to be reckoned with. Each could be a
prospective competitor to power systems based on renewable energy sources.
What emerges from these final thoughts is an argument for
retaining a reasonably wide range of options in our electricity and energy
portfolio. The role of government is not only to help overcome market failures
but also to ensure some degree of efficacy in its programmatic agenda, including
injection of the broad public interest in its supportive activities. Policies
should be sought that are more economically efficient and less politically
influenced than the system of outright renewable subsidies that has prevailed in
recent years. The nature of those policies is still being debated. For example,
the introduction of an RPS into the nation's electricity mix would be more
cost-effective than current and previous policies, but it would still be a
forcing measure that may only loosely reflect the externality benefits of
avoided fossil energy.
Prudently targeted programs in
long-term R&D represent an important complementary strategy. Defending its
proposed 6-year (constant dollar) doubling of federal R&D support for
renewable energy, the 1997 PCAST study (see Suggested Reading) indicated that
such an increase makes sense in light of the rapid rate of cost reduction
achieved in recent years for a number of renewable energy technologies, the good
prospects for further gains, and the substantial positive contributions these
technologies could make to improving environmental quality, reducing the risk of
climate change, controlling oil-import growth, and promoting sustainable
economic development in Africa, Asia, and Latin America. Opportunities exist for
important advances in wind-electric systems, photovoltaics, solarthermal energy
systems, biomass-energy technologies for fuel and electricity, geothermal
energy, and a range of hydrogen-producing and hydrogen-using technologies
including fuel cells ...
(T)he increased support for
these renewable-energy technologies would focus on areas where the expected
short-term returns to industry are insufficient to stimulate as much R&D as
the public benefits warrant.
As of mid-2000,
congressional deliberations pointed to a level of funding for renewable energy
resources in fiscal year 2000-01 of around $440 million, nearly a 20% increase
(in current dollars) over a year earlier. Whether consciously or fortuitously,
the congressional path seems to embrace, and perhaps even leapfrog, the path
recommended by PCAST. R&D funding levels apart, what deserves continued
close attention is the extent to which environmental externalities and societal
risks associated with energy production and use elude private-market
transactions. Where they do, it would be surprising if the needed public sector
initiatives seeking economically efficient correctives did not include a
consequential role for renewables.
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