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

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

Renewable energy is getting a bad rap on the campaign trail, but
the promise of solar power has never been greater

By Charles Kenny
     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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