Archive for April, 2014

Subsidizing renewables increases research and development

Sunday, April 27th, 2014

The last post discussed Severin Borenstein’s findings that most justifications for renewables subsidies don’t make sense. David Popp’s Innovation and Climate Policy brings up a different reason, a market failure that might not adequately be addressed by simply pricing fossil fuels at a much higher level, to reflect their costs.

This post is California-centric. My state has invested heavily in renewables—is this a good choice, or can we do better?

Every major paper I’ve read on energy policy stresses the need for research and development (R&D), both government (basic research) and private investments (closer to market). This is necessary today so that tomorrow’s energy is cheaper. Every paper I have read on energy says that R&D needs to be increased significantly, that we will pay dearly tomorrow for failing to invest enough today. In an article on the hearing for current Secretary of Energy Moniz, the Washington Post provided more information:

Spending for R&D should be greater
The Washington Post looks at the level of investments in R&D in a number of charts; here, expenditures are well below International Energy Association recommendations.

Spending over time
We’re also spending much less on energy than in the 1970s. (Energy research funds doubled in real terms between 1973 and 1976, and almost doubled again by 1980. The Arab oil embargo began in October 1973.)

Federal R&D can be increased by direct expenditure (although we choose not to, much), but not so for private R&D. What to do? Popp says that using subsidies and mandates to make renewables more attractive today, more than they would be if a huge cost were added to GHG emissions, is important, because this leads to large private R&D increases, and is an investment in our energy future.

This may be, but I found his arguments unpersuasive. Let me know what I missed. I don’t know that Popp reaches conclusions that are wrong in any way, but that it may make sense to explore the issues more completely.

First, how much money goes to energy R&D?

This is the amount of R&D paid for by the Department of Energy (DOE), from 1990 – 2013, about $6 billion for energy in 2013.

Popp errs in saying that DOE 2008 energy R&D was $4.3 billion, and that 23% went to nuclear. The chart shows this is clearly not the case—Popp does not differentiate between fission (the current method) and fusion, decades in the future, or civilian and military research. Globally, Popp says, 39% of $12.7 billion went to nuclear, and only 12% to renewables. Looking at the numbers in greater detail gives a different picture. For example, while it is true that in 2005, over 40% of global energy R&D is fission and fusion, taking out Japanese research (mostly for its breeder reactor), and French research (Areva is government owned), total fission research in 2005 was $308 million, less than 1/3 that spent on renewables.

What should R&D focus on?

Is private R&D currently targeted in a way that makes sense? Where are the biggest deficiencies?

I did not see a treatment of this question. Severin Borenstein says that it is important for California to focus not just on reducing its own emissions, but finding solutions that are important for the world.

The number one solution in Intergovernmental Panel on Climate Change Working Group III, the number one solution in various International Energy Agency reports, is increased efficiency (in power plants, transmission and distribution, cars, heating and cooling, appliances, etc). Carbon capture and storage (CCS) is very high on the list of technologies for making electricity. This is because CCS can work with existing fossil fuel plants which are likely to be in operation for decades, and with industries such as steel which are energy intense but do not use electricity. Additionally, CCS can be used with bionergy to take carbon dioxide out of the air. Carbon capture and storage is not a source of energy but a number of methods that reduce significantly carbon dioxide released when burning fossil fuels or bioenergy.

There are a number of other low-GHG solutions, including nuclear, solar, and wind, and to a lesser extent, geothermal. By implying that the R&D budget for nuclear is already high, Popp appears to imply that it is sufficient. Even if an R&D budget is large, how do we determine what constitutes a sufficient funding?

• Size of the current and historical R&D budget, both public and private, is not the only criterion—huge amounts have been spent on solar panel (photovoltaic, or PV) R&D over the decades, and PVs still are not able to compete with fossil fuels or nuclear power without huge subsidies. PVs need more R&D than wind and nuclear to get to affordable—solar has greater R&D needs. How do we evaluate needs, and choose among sources? Does it make sense to consider wind and solar together?

• The role the solution will play in the future is also important, as is the timing of the solutions. International Energy Agency has been warning for years that CCS research especially needs to be done on a much faster time scale (see any executive summary of their Energy Technology Perspectives). How do we select among CCS, nuclear, and wind and solar power?

• Other states and countries are subsidizing some solutions—Germany today, and Spain in the past, are among a number of countries and states that have spent vast sums subsidizing renewables, so perhaps California might consider investing in other sources.

Does this method work particularly well compared to other methods of encouraging private R&D?

California has a long history of mandating technology change first. The first Environmental Protection Agency was here, so California has the right to set its own smog standards, fuel efficiency standards, etc. Thank goodness, because our smog standards were earlier, and more stringent.

We also have a history of programs to push the technology. California mandated electric cars in 1990, and participated in a partnership beginning in 2000 to encourage fuel cell buses, with both federal and state funding. What does economics literature say about the success for technology still far in the future? Are affordable solar panels near enough that private R&D is a good investment?

Are there other methods that would be more successful, such as funding research hubs, or giving grants to various R&D projects? Is there not yet enough history to choose among methods? (Presumably most or all work better than the current alternative of underfunding R&D.)


It is clear that U.S. governmental and private investment in energy R&D is too small. David Popp’s Innovation and Climate Policy discusses how to increase private investment, but insufficient information is provided about what economists know about encouraging R&D.

Of all the reasons to subsidize and mandate renewables, many listed in the previous post, the need to encourage private R&D makes the most sense. However, it seems to me important to treat a number of questions in more detail. These include:
• How much of our goal is to push R&D? to meet local needs vs global needs?
• How do we choose between CCS, nuclear, solar, wind and other clean energy technologies?
• Is this method of encouraging R&D likely to be most fruitful, or are there better alternatives?

Lightly edited for clarity

Most popular reasons for subsidizing renewables don’t make sense

Sunday, April 27th, 2014

Intergovernmental Panel on Climate Change recently released a set of major reports. Working Group I said that we must limit severely the amount of greenhouse gases we release if we are to stay below 2°C increase over pre-industrial times. Working Group II discussed changes we will see, and could see, if we do not meet this goal. Working Group III said that if we make good choices about how to reduce GHG emissions, mitigation could be fairly cheap.

With that in mind, it makes sense to look at policies both in place and planned. One such policy is direct subsidies and mandates, an indirect subsidy, to renewables, particularly wind and solar. Wind and solar are expected to be important in the 2050 time frame, with solar and wind together expected to supply between 20 and 60% of electricity capacity, depending on the region, according to the 2012 International Energy Agency Energy Technology Perspectives. (Capacity refers to the amount of electricity that can be produced at maximum operation. Because wind and solar power have a lower capacity factor than nuclear or fossil fuels, their actual contribution will be much lower.)

Currently, the majority of U.S. states and a number of countries subsidize or/and mandate renewables. They usually subsidize capacity (paying per megawatt built) or electricity (per kWh), or require a set percentage of power to come from renewables (33% in California by 2020, although some can be built out of state).

Renewables include energy from hydroelectric (although some governments don’t count large hydro); biomass or bioenergy—generally agriculture waste and landfill gas, although future plans include dedicated crops; wind; geothermal; sun; and tidal or other forms of marine power. (Geothermal is not technically renewable on a human time scale, as wells tap out.) The sun is used to make electricity using two different technologies: making steam, which is then used in the same way fossil fuel or nuclear steam is used, and solar panels, or photovoltaics (PV). Renewables can be used for electricity, heat (particularly sun and biomass) or transport (particularly biofuels). These two posts will examine only renewables used for electricity.

In many places, renewables subsidies exist because they are politically acceptable, and solutions economists favor are not. Highest on economists’ list is adding a steep cost through a tax or cap and trade program. Upcoming blogs will examine why, and the differences between these. The current so-called social cost of fossil fuels, the cost society pays, but the polluter does not, is $37/ton carbon dioxide. (A number of economists say this is too low, and give wonk reasons to support their thinking. They say, in part, that “because the models omit some major risks associated with climate change, such as social unrest and disruptions to economic growth, they are probably understating future harms.” This short article is worth reading.)

Assuming we adopt a tax or cap and trade: will it make sense to continue subsidizing or/and mandating renewables? Economists ask: is there a market failure that cannot be addressed sufficiently by including the steep cost of greenhouse gas (GHG) emissions in the price, that will require other policy interventions? Internalizing a social cost of $37, adding 4 cents or so/kWh of coal power, about half that to natural gas power, makes renewables more attractive because fossil fuels are more expensive. However, the goal is not to make renewables more attractive, but to solve a number of market problems. Economists don’t see their goal as favoring certain solutions, but making the market work better by removing market failures. Of these, the most important is the failure to price fossil fuel pollution correctly.

Two papers I read recently look at direct or indirect subsidies to renewables. Severin Borenstein, in The Private and Public Economics of Renewable Electricity Generation, finds most arguments made in favor of renewables subsidies do not make stand up under scrutiny. (See next post for a discussion of the other paper.)

Wind is currently close to fossil fuels in price, but wind has several disadvantages (it is non-dispatchable, tends to blow more when it is less needed, and requires expensive and GHG-emitting backup power). While coal and natural gas do get subsidies, these are a fraction of a cent/kWh. Renewables get hefty federal subsidies, such as 2.1 cents/kWh for wind, and more for solar. [These are supplemented by state subsidies.]

What benefits of renewables are not addressed by adding a cost to greenhouse gases, and so justify subsidies to renewables? Borenstein looks at a number of assertions:

• Some renewables decrease pollution other than greenhouse gases, pollutants that damage human health (as well as ecosystems and agriculture).

This is an additional important part of polluter pay not being considered today. However, this cost to human health, etc. is more variable, and depends on population density, climate and geography. General subsidies for renewables would not make sense—subsidies must target power plants doing the most damage. That is not done today.

• Increasing the use of renewables will increase energy security, because the U.S. will produce more of its own electricity.

Since the U.S. uses U.S. coal and natural gas, U.S. rivers, and so on, this argument doesn’t seem to apply here (it might apply elsewhere). This argument could apply to oil imports, and electric cars, if they are successful, could replace imported oil. However, coal and natural gas are cheaper, they would be more effective than renewables in replacing oil in transportation, and renewables have no inherent advantage.

• Subsidies for renewables will lead to more learning by doing, and this will lead to lower prices.

However, this subsidy for renewables only is appropriate if society benefits rather than the particular company. And there appears to be little support that this oft-cited factor has been important to the decrease in solar panel prices over time. There is more support for evidence that technology progress in the space program and semiconductors, as well as an increase in the size of solar companies, has had more effect.

• Green jobs will follow, as renewables require more workers (or/and more workers among the unemployed and underemployed).

This statement has two components. There is uneven support for the idea that renewables and energy efficiency employ more people than other fields of energy. They may even target workers who have more trouble getting work, a social benefit. The longer term argument is that this will build a renewables industry, although evidence in Germany and Spain does not appear to support this idea. Studies might provide support for one or both ideas.

• Lower costs for fossil fuels will follow decreases in the cost of competing forms of energy.

The evidence for this is scarce.


The main justification discussed so far for renewables subsidies over adding a cost to greenhouse gas emissions appears to be that society allows subsidies and does not allow a tax. The next post will examine an additional reason, the role subsidies play in increasing research and development.

IPCC on Mitigation: Which technologies help reduce GHG emissions the most?

Wednesday, April 16th, 2014

Intergovernmental Panel on climate Change Working Group 3 (Mitigation) has produced their update from 2007. This post looks at electricity technologies.

Summary, also comments
• Improving efficiency much more rapidly in all sectors (energy production, distribution, and use) is crucial.
• Carbon capture and storage (CCS) is the single biggest addition to business as usual, if our goal is to keep atmospheric levels of CO2-equivalent below 450 ppm, or even 550. Plans for research and development, and deployment, should proceed rapidly and aggressively. (This will be aided by adding a cost to greenhouse gas emissions to cover their cost to society.)
• Bioenergy is the next most important technology. The “limited bioenergy” scenario increases bioenergy use to 5.5 times 2008 levels by 2050, and it will be very costly if we restrict bioenergy to that level. There are a number of concerns about how sustainable this path will be, and with larger increases in temperatures, the quantity of biomass available for electricity and fuels.
• If we don’t get our act together a few years ago, we will be using bioenergy and carbon capture and storage together. Bioenergy will take carbon dioxide out of the atmosphere and CCS will put it into permanent storage. This will cost several hundred dollars/ton CO2, and is relatively cheap compared to the alternative (climate change), although much more expensive than getting our act together.
• To the extent that we add nuclear, wind, and solar as rapidly as makes sense, we reduce dependence on bioenergy.
• Given the relative importance of carbon capture and storage, it may make sense for nations (e.g., Germany) and states (e.g., California) that want to jump start technologies to focus more on CCS than on renewables.
• Do all solutions, now.

Which solutions for electricity are important?
IPCC provides an answer by calculating the cost of failing to use the solution.

Efficiency remains the single largest technology solution, along with shifting to best available technologies: more efficient power plants, cars, buildings, air conditioners, and light bulbs. Since so many buildings are being constructed, and power plants built, with a lifetime of decades, early implementation of efficiency makes the task possible. The cost of failing to add efficiency sufficiently rapidly isn’t calculated in the Summary for Policymakers, but assume it’s more than we want to pay.

Nuclear and Solar + Wind
Can we do without renewables or nuclear power? Looking at only the attempt to reduce greenhouse gas emissions from electricity, IPCC found that opting out of nuclear power would increase costs by 7% in the 450 parts per million CO2-equivalent goal, and limiting wind and solar would increase costs by 6%. To stay below 550 ppm CO2-eq, costs would go up 13% (of a much smaller cost) without nuclear, and 8% without solar and wind. Crossing either off the list looks pretty unattractive.

Go to Working Group 3 for the full report, and the technical summary. IPCC also has an older report, Special Report on Renewable Energy Sources and Climate Change Mitigation.

Caveats re nuclear:

Nuclear energy is a mature low-GHG emission source of baseload power, but its share of global electricity generation has been declining (since 1993). Nuclear energy could make an increasing contribution to low-carbon energy supply, but a variety of barriers and risks exist (robust evidence, high agreement). Those include: operational risks, and the associated concerns, uranium mining risks, financial and regulatory risks, unresolved waste management issues, nuclear weapon proliferation concerns, and adverse public opinion (robust evidence, high agreement). New fuel cycles and reactor technologies addressing some of these issues are being investigated and progress in research and development has been made concerning safety and waste disposal.

I’m not sure what risks are associated with uranium mining.

Caveats re renewable energy (RE), excluding bioenergy:

Regarding electricity generation alone, RE accounted for just over half of the new electricity generating capacity added globally in 2012, led by growth in wind, hydro and solar power. However, many RE technologies still need direct and/or indirect support, if their market shares are to be significantly increased; RE technology policies have been successful in driving recent growth of RE. Challenges for integrating RE into energy systems and the associated costs vary by RE technology, regional circumstances, and the characteristics of the existing background energy system (medium evidence, medium agreement).

Note: the capacity factor for intermittents like wind and solar (and sometimes hydro), the percentage of electricity actually produced compared to what would be produced if the source ran at maximum capacity 24/7, is dramatically less than for nuclear and other sources of electricity. Added capacity (gigawatts brought online) does not communicate how much electricity, GWh, was added. The increase in coal in 2012 was 2.9% (see coal facts 2013). Since coal was 45% of 2011 electricity, the increase in coal was far greater than the increase in wind and solar combined.

The use of bioenergy increases dramatically in all scenarios. If we limit bioenenergy to 5.5 x 2008 levels, costs rise 64% (18% of a smaller number for 550 ppm scenario). Bioenergy, using plants for fuels and power (electricity) dominates high renewables scenarios.

Caveats re bioenergy:

Bioenergy can play a critical role for mitigation, but there are issues to consider, such as the sustainability of practices and the efficiency of bioenergy systems (robust evidence, medium agreement). Barriers to large scale deployment of bioenergy include concerns about GHG emissions from land, food security, water resources, biodiversity conservation and livelihoods. The scientific debate about the overall climate impact related to landuse competition effects of specific bioenergy pathways remains unresolved (robust evidence, high agreement). Bioenergy technologies are diverse and span a wide range of options and technology pathways.

There are many concerns about the amount of bioenergy—biopower and biofuels. With so many demands on land facing an increasing population wishing to supply food, fiber, green chemicals, etc in a world with a rapidly changing climate, sustainability is not foreordained. The Special Report on Renewable Energy Sources and Climate Change Mitigation estimates the net effect on yields to be small worldwide at 2°C, although regional changes are possible. By mid-century, temperature increase over pre-industrial could be more than 2°C, and yields are more uncertain.

Note: fusion energy is not mentioned in this short summary, but such strong dependence on bioenergy gives an idea why there is so much research on somewhat speculative sources of energy.

Carbon Capture and Storage
Carbon capture and storage (CCS) provides even more of the solution—costs go up 138% if we do without carbon capture and storage for the 450 ppm scenario (39% of a smaller number for 550 ppm scenario). Part of the attraction of CCS is that it can help deal with all the electricity currently made using fossil fuels. A number of countries are heavily invested in fossil fuel electricity, and a smaller number of countries, from China to Germany, are adding coal plants at a rapid rate, and will likely be reluctant to let expensive capital investments go unused. Additionally, as International Energy Agency (IEA) points out, almost half of carbon capture and storage is aimed at decarbonizing industry: steel, aluminum, oil refineries, cement, and paper mills use fossil fuel energy directly. Nuclear is often not practical in such situations, and wind and solar rarely are.

BECSS—Bioenergy and CCS
One of the cheaper ways to take carbon out of the atmosphere is to combine bioenergy and carbon capture and storage. Using plant matter to make electricity is nearly carbon neutral, as plants take carbon dioxide out of the atmosphere to grow, and release it back when they are burned for electricity or fuel. However, CCS can store that CO2 permanently. Cheaper is relative to the costs of climate change, as the cost is expected to be several hundred dollars/ton. This method is much more expensive than other methods of addressing climate change that are currently underutilized.

The International Energy Association booklet, Combining Bioenergy with CCS, discusses the challenges of ascertaining whether the biomass was grown sustainably.

Note: IEA gives some sense of how rapidly CCS should come online:

Goal 1: By 2020, the capture of CO2 is successfully demonstrated in at least 30 projects across many sectors, including coal- and gas-fired power generation, gas processing, bioethanol, hydrogen production for chemicals and refining, and DRI. This implies that all of the projects that are currently at an advanced stage of planning are realised and several additional projects are rapidly advanced, leading to over 50 MtCO2 safely and effectively stored per year.

Goal 2: By 2030, CCS is routinely used to reduce emissions in power generation and industry, having been successfully demonstrated in industrial applications including cement manufacture, iron and steel blast furnaces, pulp and paper production, second-generation biofuels and heaters and crackers at refining and chemical sites. This level of activity will lead to the storage of over 2 000 MtCO2/yr.

Goal 3: By 2050, CCS is routinely used to reduce emissions from all applicable processes in power generation and industrial applications at sites around the world, with over 7 000 MtCO2 annually stored in the process.

How much more low-GHG electricity is needed?
IPCC says 3 – 4 times today’s level by 2050. About 33% of today’s electricity is low-GHG, so by mid-century, more electricity than we make today will need to come from fossil fuel and bioenergy with CCS, nuclear, hydro, wind, solar, and other renewables.

For some of the challenges to rapidly increasing reliance on any energy source, see David McKay’s Sustainable Energy—Without the Hot Air.