“The joke among China hands goes like this: If the Americans and the Chinese start talking about a major project today, in two years the Chinese will be done and the Americans will still be talking and applying for permits.” – Michael Economides

China’s economy is growing at a rate of 9 percent per year, and forecasts have its fast pace of economic growth continuing, though at a slightly lower rate.[i] Eager to bring more of its citizens out of poverty, China will not let energy be a bottleneck for such growth. Because it has limited domestic oil and gas resources, China is investing globally to ensure supply. The world’s most populous country is also expanding its coal-fired electricity capacity at breakneck speed and making a major commitment to nuclear energy. In smaller quantities, and under international pressure from the environmental community, China is also constructing solar- and wind-powered generating facilities, to the point that 30 percent of its wind capacity cannot be supported by its electric grid. Yet even with all these other technologies, coal will remain China’s mainstay for a very long time since coal is its most abundant and least expensive resource.

All this is happening in a developing country that learns from others, and quickly outperforms them by manufacturing the same materials at significantly less cost, thus increasing its export market. It is also a country where there is a lot less red tape: regulations, legal delays, and financing issues do not stand in the way of its energy construction progress.[ii]

Coal

China currently gets 70 percent of its energy from coal[iii] and is expected to retain this fuel as its major source of energy at least through the next several decades. China ranks third in the world in recoverable coal reserves,[iv] after the U.S. and Russia. Its annual coal production and consumption is the highest in the world, more than twice that of the U.S.[v] Both China’s generating sector and its industrial sector rely heavily on coal, with 79 percent of its electric generation being coal-fired.[vi] The Energy information Administration (EIA) expects that 75 percent of China’s electric generation will still be coal-fired in 2030.[vii]

That EIA forecast expects 600 additional gigawatts of coal-fired capacity to be built in China between 2006, the most recent year of reliable data, and 2030.[viii] That equates to 50 plants a year of 500 megawatt (MW) capacity, or 1 coal plant coming on line each and every week for 24 years. From current reports, China is meeting this goal by planning to build 500 coal-fired plants over the next ten years.[ix] That means: every week to 10 days, China will open another coal-fired power plant that is big enough to serve all the households in Dallas or San Diego.[x]

Wind

Not only is China building coal-fired plants to increase its generating capacity; it is building them to back-up wind power when the wind doesn’t blow or when the grid is inadequate to handle the wind capacity. Last year, as much as 30 percent of China’s wind power was not connected to the grid. Adding to the problem is poor connectivity between regional transmission networks, which makes it difficult to move surplus power from one part of the country to another and thus requires each region to have sufficient reserve capacity.[xi]

Even with these problems, China has a goal to produce 15 percent of its energy from renewables by 2020.[xii] To help meet this goal, China is planning to build the world’s largest wind farm in the northwest part of the country. The plan is for 5 gigawatts in 2010, expanding to 20 gigawatts in 2020, at a cost of $1 million per megawatt,[xiii] or $1,000 per kilowatt, about half the cost of an onshore wind unit in the U.S., according to the Energy Information Administration.[xiv]

While China is manufacturing wind turbines for domestic use, few of its wind turbines are currently being exported. But that may soon change if the U.S. allows a consortium of Chinese and American companies to build a 600-megawatt wind farm in West Texas, using turbines manufactured in China.[xv] One-third of the wind farm’s funding will be from federal stimulus money and about 330 jobs will be created in the U.S., mostly temporary construction jobs. The labor-intensive work of building the turbines will also create thousands of jobs in China. GE will provide the gearboxes of the turbines, but they too will be made in China.[xvi] GE, a major U.S. wind turbine producer, already owns three facilities in China that produce turbine components.[xvii] And GE is planning a factory in Vietnam that will employ 500 local workers and export 10,000 tons of components to GE Energy assembly plants around the world.[xviii]

Solar

China leads the world in solar cell manufacture, although 95 percent of its production is exported.[xix] Currently, China itself generates very little electricity from solar power. At the end of 2008, about 0.01 percent of its grid-connected electric generating capacity was from solar.[xx] However, in September, Arizona-based First Solar signed a deal to build the world’s largest solar farm in China by 2019, which will supply power to 3 million homes.[xxi]

Realizing that the U.S. may be a good market for solar, China’s Suntech, the world’s largest supplier of solar panels, announced plans to build a solar manufacturing plant in Phoenix, Arizona, with production beginning next year. Arizona was chosen because its Renewable Energy Standard requires that 15 percent of the state’s electricity generation be supplied from renewable power by 2025 and because Arizona favors distributed generation, whereby power is provided locally for homes or businesses.[xxii] Suntech’s factory will create finished panels from subcomponents that will be manufactured in the company’s Chinese facilities. According to Suntech, locating the assembly in the U.S. will lower delivery time and costs, as well as reduce the overall carbon footprint of getting finished panels to U.S. customers.

Because of Chinese and other Asian competition, the cost of solar panels dropped 50 percent in the past 18 months.[xxiii] Due to lower operating costs in China, a U.S.-based firm, Evergreen Solar, after receiving over $58 million in incentives from the state of Massachusetts, is moving its assembly plant to China.[xxiv] (In 2008, Massachusetts’s industrial electricity prices were 115 percent higher than those of Arizona.[xxv] Industrial electricity prices in Massachusetts are lower in 2009, making the differential in prices through August 2009 only 69 percent.[xxvi]) The push to get China into the solar power market seems to have some environmental consequences. China is a major worldwide producer of polysilicon—the key component of sunlight capturing wafers. The manufacturing of polysilicon, however, produces a highly toxic substance, silicon tetrachloride, which can be recycled back into the production cycle. In China, however, many factories are dumping the waste product because of the high investment costs and time required for the recycling process, and because of the enormous energy consumption needed to heat the substance to more than 1800 degrees Fahrenheit. People close to the sites where the substance is being dumped are complaining of illness, crop failures, acrid air, and dead fields. But owing to the shortage of polysilicon, the Chinese Government is willing to overlook these complaints.[xxvii]

Nuclear

China is also building nuclear power plants, with 20 nuclear reactors under construction and more starting construction this year.[xxviii] Four AP 1000 reactors are under construction at 2 different sites: Haiyang and Sanmen.[xxix] These are the same reactors that the U.S. Nuclear Regulatory Commission (NRC) has ruled need additional analysis, testing, or design modifications of the shield building to ensure compliance with NRC requirements.[xxx] China expects to achieve a total nuclear capacity of 60 gigawatts by 2020, and 120 to 160 gigawatts by 2030,[xxxi] surpassing the total nuclear capacity of the United States.

Natural Gas

China is not well-endowed with natural gas, having only 1.3 percent of the world’s reserves. Nonetheless, it is expected to build an additional 23 gigawatts of gas-fired electric generating capacity by 2030, almost doubling its gas-fired capacity, according to the EIA.[xxxii] To fuel these generators, China will need to continue its dependence on natural gas imports, which will provide one-third of its total natural gas consumption by 2030. China opened its first LNG regasification facility in 2006 at Guangdong, and 2 others are planned to open this year. The first imports of natural gas into China by pipeline are expected in 2011, via a new pipeline running from Turkmenistan through Kazakhstan.[xxxiii]

Conclusion

China is on a fast track to bring online new generating units using coal, nuclear, solar, and wind power, which will allow its economy to continue to grow. However, because China is endowed with a sizable amount of coal resources and because coal is still the cheapest energy source in China, coal-fired generating additions will far outpace those of other technologies. “No matter how much renewable or nuclear is in the mix, coal will remain the dominant power source,” said Ashok Bhargava, a China energy expert at the Asian Development Bank in Manila.[xxxiv] By continuing to rely heavily on currently available coal technology, China will remain the number one emitter of carbon dioxide, almost doubling its carbon dioxide emissions by 2030, according to EIA’s forecast.[xxxv]

The U.S., on the other hand, has made it difficult to build generating plants in this country. Prospects of cap-and-trade legislation and reviews and re-reviews by the Environmental Protection Agency have slowed the construction of new coal-fired plants. NRC requirements, financing difficulties, and slow fulfillment of the nuclear provisions of the Energy Policy Act of 2005 have slowed the construction of new nuclear power reactors. Even renewable energy projects have been halted by “not in my back yard” (NIMBY) protesters. They have blocked energy projects by organizing local opposition, changing zoning laws, opposing permits, filing lawsuits, and bleeding projects dry of their financing.[xxxvi] Without reasonably priced energy, it will be difficult to achieve high levels of economic growth, and U.S. industry will just move offshore where energy is more affordable.

[i] Energy Information Administration, International Energy Outlook 2009, http://www.eia.doe.gov/oiaf/ieo/index.html

[ii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[iii] Energy Information Administration, International Energy Annual 2006, http://www.eia.doe.gov/emeu/cabs/China/Background.html

[iv] Recoverable reserves are those quantities of coal which geological and engineering information indicates with reasonable certainty can be extracted in the future under existing economic and operating conditions.

[v] Energy information Administration, International Energy Outlook 2009, Table 9, http://www.eia.doe.gov/oiaf/ieo/index.html

[vi] Ibid, Tables H10 and H13

[vii] Ibid

[viii] Ibid, Table H4

[ix] http://windfarms.wordpress.com/2009/01/29/china-building-500-coal-plants/

[x] The New York Times, “Pollution From Chinese Coal Casts a Global Shadow”, http://www.nytimes.com/2006/06/11/business/worldbusiness/11chinacoal.html?_r=1

[xi] The Wall Street Journal, “China’s Wind Farms Come with a Catch: Coal Plants”, September 28, 2009, http://online.wsj.com/article/SB125409730711245037.html

[xii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[xiii] The Wall Street Journal, “Wind Power: China’s Massive and Cheap Bet on Wind Farms”, July 6, 2009, http://blogs.wsj.com/environmentalcapital/2009/07/06/wind-power-chinas-massive-and-cheap-bet-on-wind-farms/

[xiv] Energy information Administration, Assumptions to the Annual Energy Outlook 2009, Table 8.2, Electricity Market Module, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html

[xv] www.reuters.com/article/pressRelease/idUS200008+29-Oct-2009+BW20091029

[xvi] Dallas News, “Wind turbine jobs blow in China’s direction”, November 19, 2009, http://www.dallasnews.com/sharedcontent/dws/bus/columnists/jlanders/stories/DN-landers_17bus.1.ART0.State.Edition1.3f095e8.html

[xvii] “Overseas firms collecting most green energy money”, October 29, 2009, http://investigativereportingworkshop.org/investigations/wind-energy-funds-going-overseas/

[xviii] “Vietnam’s first turbine component plant underway”, May 13, 2009, http://www.vietnewsonline.vn/News/Business/Companies-Finance/6072/Vietnams-first-turbine-component-plant-underway.htm

[xix] http://www.guardian.co.uk/world/2009/may/26/china-invests-solar-power-renewable-energy-environment

[xx] http://en.wikipedia.org/wiki/Solar_power_in_China

[xxi] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[xxii] Business Week, “China Solar Panel Maker Sets First U.S. Plant”, November 15, 2009, http://www.businessweek.com/technology/content/nov2009/tc20091115_970512.htm

[xxiii] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm

[xxiv] The Boston Globe, “Evergreen Shifts Work to China”, November 5, 2009, http://www.boston.com/business/articles/2009/11/05/evergreen_shifts_work_to_china

[xxv] Energy Information Administration, Electric Power Monthly, March 2009, Table 5.6B, http://tonto.eia.doe.gov/ftproot/electricity/epm/02260903.pdf

[xxvi] Energy information Administration, Electric Power Monthly, November 2009, Table 5.6B, http://www.eia.doe.gov/cneaf/electricity/epm/epm_sum.html

[xxvii] Washington Post, “Solar Energy Firms Leave Waste Behind in China”, March 8, 2008, http://www.washingtonpost.com/wp-dyn/content/article/2008/03/08/AR2008030802595_2.html

[xxviii] “Nuclear Power in China”, World Nuclear Association, November 6, 2009, www.world-nuclear.org/info/inf63.html

[xxix] Westinghouse News Releases, “Westinghouse and the Shaw Group Celebrate First Concrete Pour at Haiyang Nuclear Site in China”, September 29, 2009, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=200

[xxx] “Westinghouse Statement Regarding NRC News Release on AP1000 Shield Building”, http://westinghousenuclear.mediaroom.com/index.php?s=43&item=203

[xxxi] “Nuclear Power in China”, World Nuclear Association, November 6, 2009, www.world-nuclear.org/info/inf63.html

[xxxii] Energy Information Administration, International Energy Outlook 2009, Tables 6 and H3, http://www.eia.doe.gov/oiaf/ieo/index.html

[xxxiii] Ibid, Chapter 3, Natural Gas

[xxxiv] The New York Times, “China Far Outpaces U.S. in Cleaner Coal-Fired Plants”, http://www.nytimes.com/2009/05/11/world/asia/11coal.html

[xxxv] Energy Information Administration, International Energy Outlook 2009, Tables A10, http://www.eia.doe.gov/oiaf/ieo/index.html

[xxxvi] For a repository of stalled and stopped energy projects, see U.S. Chamber of Commerce, “Project No Project Energy-Back On Track”, http://pnp.uschamber.com/

This is completely misleading. It is true that the vast majority of the surveyed economists believe that climate change poses a threat to the economy. However, this alone doesn’t mean that their work endorses the pending legislation. In fact, we will show that many of the responses in the survey underscore that Congress’ proposed “solutions” to climate change violate the recommendations of even those economists who are very concerned about climate change.

The Existence of a Threat Alone Doesn’t Justify Any Government “Solution”

The most-hyped result from the survey was the fact that 84 percent of the surveyed economists agreed with this statement: “The environmental effects of greenhouse-gas emissions, as described by leading scientific experts, create significant risks to important sectors of the United States and global economy.”

Already we see that the question is loaded; a more neutral question would have been, “Do you think greenhouse-gas emissions create significant risks to the economy?” There are many economists who have expressed skepticism about the computer models and techniques used to generate some of the scarier projections. But with the phrasing of the question, they were technically being asked to take the climate models at face value, and assess what the impact of their projections would be on the economy.

But that’s a minor quibble. The real problem with the hype placed on this particular result, is that it does not follow that the Waxman-Markey or Kerry-Boxer bills are appropriate to dealing with this potential risk. For an analogy, if we surveyed doctors and asked, “Is there a significant risk to the public from H1N1?” presumably a large percentage would say, “Yes.” If the Obama Administration then proposed vaccinating every American three times a month for the next 20 years, that would clearly be a waste of resources and detrimental to public health.

The same is true with the threat of climate change. As we will show, the pending Congressional legislation actually violates many of the recommendations of the economists in the survey. Yet one would never get that impression from reading the NYT coverage, or story in USA Today.

Surveyed Economists Favor “Market-Based” Approach and Auctioned Allowances

Another completely misleading result from the survey shows that an overwhelming 91.6 percent of the respondents favored a “market-based” approach to curbing greenhouse gas emissions. In the news stories linked above, as well as the Executive Summary of the survey itself, this statistic is offered as apparent endorsement of the cap-and-trade legislation currently being debated in Congress.

On the contrary, the economists endorsement of “market-based” approaches really shows how inefficient the pending legislation is. By “market-based” approach, the economists mean that the government should place a price penalty on carbon dioxide emissions, either through a cap-and-trade system or a straightforward carbon tax. And then…the government should mind its own business. In particular, policymakers should not try to micromanage the particular ways that business and consumers scale back their emissions, but rather the (augmented) profit and loss system will lead to the most efficient response to the new incentives. As the study itself explains:

Nearly all respondents—92%—also agreed or strongly agreed that market-based mechanisms, as opposed to command-and-control approaches, are the preferred way to cut greenhouse gas emissions and place a price on carbon. As such, most economists would support the cap-and-trade structure proposed by the main legislative options now pending before Congress. [Emphasis added]

Yet contrary to the non sequitur in the quote above, if a straightforward “market-based” approach is what the expert economists favor—by an overwhelming majority—then the economists would likely reject the monstrous hunks of legislation that passed the House and are being debated in the Senate. We at IER have already shown the tremendous thicket of new regulations contained in the House-passed Waxman-Markey bill, besides its cap-and-trade system. At best, only one half of Waxman-Markey could even be called cap-and-trade, leaving an additional 700 pages of inefficient regulations. The 91.6 percent of economists who favored a “market-based” approach were rejecting the top-down central planning contained in Waxman-Markey and Kerry-Boxer.

Speaking of cap-and-trade, the IPI survey also found that 80.6 percent of respondents favored auctioning emission allowances rather than handing them to favored groups for free. Presumably then these economists would join with IER in condemning this thinly veiled transfer of an enormous amount of wealth from low- and middle-class energy consumers into the pockets of politically-connected shareholders.

What the Media Hype Didn’t Report

We have seen that the two most-hyped results of the survey actually do not support the pending legislation, and if anything actually undercut it. What’s interesting is that if one looks at pages 18-19 of the actual survey [.pdf], one learns:

The survey asked what percentage of benefits from emissions reduction would accrue to the United States. The average response was 7.7%, and the median was 4%….Given the global extent of the problem, each individual country has an incentive to “free ride” on the efforts of others—it is important for all countries to act to overcome this incentive or else appropriate controls will not be put in place.

The lay person who simply reads the news coverage or Executive Summary would be stunned by the above concession. Many economists support a reduction in greenhouse gas emissions because they calculate that the global benefits will outweigh the global costs. But as the above quotation makes crystal clear, if the U.S. restrains its own emissions while other major governments do not, then the impact on the U.S. economy—which the CBO estimates could be as high as 3.4 percent of GDP by 2050—will result in benefits that will accrue largely to foreigners.

Of course, there is nothing wrong with foreign aid per se; Americans are quite generous with their wealth. Furthermore, many people believe that the Western countries ought to bear the lion’s share of the pain from emissions cuts, because they historically benefited from plentiful energy supplies in the form of fossil fuels. Even so, average Americans are being misled when they believe the pending legislation will benefit the U.S. economy on net. Even according to the “consensus” models, it will not benefit if the U.S. acts unilaterally.

Conclusion

The media blitz surrounding the new IPI survey tells Americans that economists as well as climate scientists support government intervention into the energy sector. Yet a little digging shows that if anything, the economic consensus rejects the particular legislation pending in Congress. Just because many experts agree there is a problem doesn’t automatically mean Congress has the solution.

Not true, as you can see here.

This week Senator John Kerry, the lead author of the legislation, told the Senate Finance Committee that “the reason” we need to pass his cap-and-trade energy tax is that “over the last eight years, emissions in the United States of America in greenhouse gases went up four times faster than in the 1990s.”  Also not true.  In fact, he’s off by a factor of 32.

As the video shows, greenhouse gas emissions increased far slower in the 2000s than the 1990s. According to data from the Energy Information Administration,[1] U.S. carbon dioxide emissions increased by 15.14% between 1990 and 1999, but from 2001 to 2008 carbon dioxide emissions only increased by 1.88%. If Senator Kerry were correct, U.S. carbon dioxide emissions would have increased by 60.5% over the last 8 years, but they only increased by 1.88%.  Senator Kerry overestimated U.S. emissions by a factor of 32.

These are the authors of the Kerry-Boxer cap-and-trade energy tax legislation.  If our leaders can’t stick to the basic facts to support their argument for a national energy tax, and the lead author of the bill is this far off the mark on “the reason” Congress needs to pass it, Americans might reasonably question the validity of their estimates on how much the bill will cost them and our nation’s already-struggling economy.

Even more troubling, Senator Lindsey Graham is now working with Senator Kerry on a “compromise” in which Senators’ would accept the cap-and-trade plan in exchange for “opening new areas for offshore drilling.”  This would have been a bad compromise last year, but given the fact that the Outer Continental Shelf (OCS) is now open—and has been since Congress allowed its ban on offshore drilling to expire on October 1, 2008—it appears to be an even worse compromise this year.

If the compromise is anything like the “Gang of 10” plan offered last year in the months before the Congressional ban on drilling in 85 percent of the OCS was set to expire, the only thing we’d be compromising is the progress we’ve already made. That’s because the Gang of 10 plan would have created a permanent ban on drilling in 78 percent of our offshore areas—areas that are now open.

But at the end of the day, it doesn’t matter what the compromise may be.  The long-term costs cap-and-trade legislation would inflict on our economy and our way of life would be so devastating, that no compromise – offshore drilling or anything else – would justify its passage.

Green Stimulus Money Going Overseas

Since September 1, 84 percent of the $1.05 billion in clean energy grants has gone to foreign wind companies. Foreign countries benefiting from stimulus funds for wind technology are Spain (57%), Germany (12.6%), Japan (9.5%), and Portugal (5%).[i] Companies began applying for grants at the end of July and awards were announced by the two joint administrators of the program, the Energy and Treasury Departments, beginning on Sept. 1. In the first round of the grants, 77% went to foreign wind developers, followed by 84% in the second round. Of the 11 wind farms that received grants, 695 of the 982 installed turbines were manufactured by a foreign company.[ii]

Further, there are few restrictions on how the grants can be used. According to the Investigative Reporting Workshop at American University, over $800 million were provided to wind farms that were already producing electricity. As required by law, all 11 wind farms started operating after January 1, 2009, but before the grants were awarded.[iii]

Turbine Manufacturing Dominated by Foreign Competitors

The U.S. currently has the most installed wind capacity in the world, but it is not a leader in the manufacture of turbines. The Investigative Reporting Workshop reported that of the turbines currently under construction in the U.S., 67 percent are slated to be purchased from foreign-owned turbine manufacturers.[iv] According to U.S. customs data for 2008, and the U.S. Trade Commission, the U.S. imported $2.5 billion worth of wind turbines last year—up from $365 million in 2003.

In the future, wind turbines and/or their component parts may be coming from China where lower labor costs have allowed Chinese-made products to dominate many manufactured goods in the U.S. GE, a major U.S. wind turbine producer, already owns three facilities in China that produce turbine components. GE is also planning a factory in Vietnam that will employ 500 local workers and export 10,000 tons of components to GE Energy assembly plants around the world.[v]

China is already beginning to develop its own strong hold for wind power in the U.S. A joint venture between China’s Shenyang Power Group, the U.S. Renewable Energy Group, and Cielo Wind Power LP to develop a 600 megawatt wind farm on 36,000 acres in West Texas, costing $1.5 billion, was announced on October 29, 2009.[vi] A-Power Energy Generation Systems Ltd., a provider of distributed generation systems in China and a fast-growing manufacturer of wind turbines, will supply the turbines. A-Power Energy entered the wind power industry last year.[vii] Delivery of wind turbines for the West Texas wind farm is scheduled for March 2010.[viii]

Graphic courtesy Investigative Reporting Workshop

Solar Cells Manufactured Overseas

Not only are wind turbines mostly manufactured in countries overseas, but so are photovoltaic (PV) cells. Florida Power & Light (FPL) started operating its 25 megawatt photovoltaic solar plant in southwest Florida in conjunction with a visit to the plant by President Obama on October 27. [ix] The DeSoto plant in southwest Florida is the first of a total of 110 megawatts of solar capacity that FPL will install at 3 different sites by the end of 2010. Although Obama praised FPL’s work in the solar arena, he did not tell the American public that the components of the DeSoto plant are from foreign countries. While the PV cells were provided by a firm from California, they were made in the Phillipines. The steel PV frame holding the cells was produced in Canada, and the electrical parts and boxes were made in Germany, where solar power has been given heavy subsidies by the German Government. While German manufacturers have been producing PV technology for their country’s solar expansion, they are now concerned that China will take over their market due to costs that are 30% lower.[x]

Conclusion

The Obama Administration has told the American public that it will produce jobs and stimulate the U.S. economy through green energy technology. He has also touted that stimulus funds will be used for goods made in America. Yet, the the Investigative Reporting Workshop at American University finds that this is not the case. And, more examination of green energy development in the U.S., shows Asian and European countries well established here in providing the component parts for green energy technology.

The problem is not with international trade per se. In a genuinely free market, where politicians do not pick winners or losers, the most efficient firms would capture market share, be they American or foreign. The result would be the best products at the lowest prices for American consumers.

The real problems are a government “stimulus” plan and efforts to centrally plan a “green economy.” The government can only “stimulate” by spending money that it has first taxed or borrowed from the private sector. It would be bad enough for the government to destroy jobs in American fossil fuel industry while spending money on domestic producers of “green energy.” But it is particularly absurd for the U.S. government to cripple American industry while shoveling the lion’s share of the pork into the hands of foreign beneficiaries.

[ii] Ibid.

[iii] Ibid.

[iv] Ibid

[v] “Vietnam’s first turbine component plant underway”, May 13, 2009, http://www.vietnewsonline.vn/News/Business/Companies-Finance/6072/Vietnams-first-turbine-component-plant-underway.htm

[vi] www.reuters.com/article/pressRelease/idUS200008+29-Oct-2009+BW20091029

[vii] “Lone Star, Meet Red Star: China’s $1.5 Billion Wind-Power Deal in Texas”, October 30, 2009, http://blogs.wsj.com/chinarealtime/2009/10/30/lone-star-meet-red-starchina%e2%80%99s-15-billiob-wind-power-deal-in-texas/

[viii] www.reuters.com/article/pressRelease/idUS195122+29-Oct-2009+PRN20091029

[ix] http://www.instituteforenergyresearch.org/2009/10/26/highest-cost-generating-plant-comes-on-line-in-florida-to-obama-fanfare/

[x] “Solar-Power Incentives in Germany Draw Fire,” Vanessa Fuhrmans, Wall Street Journal, September 28, 2009, http://online.wsj.com/article/SB125383541153239329.html

China’s Coal Consumption

China already consumes more than twice the amount of coal as the U.S., but by 2025, its coal consumption is expected to be 3.7 times larger than ours[I1] . Reports suggest that China is building two coal-fired electric generating plants a week,[5] while the U.S.’s coal-based generating construction program is stymied by EPA reviews, re-reviews and legal delays. Forecasters have shown that under the climate change legislation currently working its way through Congress, U.S. coal consumption will be severely reduced and replaced by nuclear and renewable generating technologies, which are more costly forms of energy. And while China has professed that it will meet renewable generation goals, it will not partake in meeting targets for greenhouse gas reductions that will hurt its projected economic growth and its future status as a major world power.[6] Instead, China is willing to make reductions in greenhouse gas intensity (greenhouse gas emissions per unit of GDP), a measure proposed by the U.S. almost a decade ago, that allows for both economic growth and lower emissions per unit of GDP from improved efficiency and technology.[7]

Let’s compare energy consumption in China and the U.S. today to each country’s projected consumption in 2025. Data for 2006 is taken from the Energy Information Administration’s (EIA) International Energy Annual (IEA)[8] and the forecasts are taken from EIA’s International Energy Outlook (IEO)[9] for 2009. [10]

China’s Renewable Energy Production

China’s energy consumption today is dominated by coal, which supplies 70 percent of its demand, followed by oil, which supplies 20 percent. Renewable energy in China is largely hydroelectric power, particularly from the 18,200-megawatt Three Gorges Dam project, whose final generator went on line in October 2008. This project is the largest hydroelectric undertaking in the world. China has other hydroelectric projects planned, totaling an additional 57,720 megawatts of new capacity that will come on line in 2009. China has established a 30,000-megawatt target for installed wind capacity by 2020 (15 percent of its energy needs), and is currently installing wind power at a rate of at least 3,000 megawatts a year.

However, wind growth in China isn’t without its problems. The Wall Street Journal reports that China’s transmission network currently can’t absorb such high rates of growth in renewable energy. Last year, as much as 30 percent of China’s wind power capacity wasn’t connected to the grid.[11] As a result, more coal is being burned in existing plants and new coal plants are being built as backup to wind energy. Wind resources do not conform to the normal hours of peak demand and require flexibility in the transmission and distribution system to take down other generators when the wind blows. Unfortunately, coal-fired capacity was not designed to be quickly taken on and offline as the electricity from wind fluctuates.

China’s electric generating sector today relies on coal for 79 percent of its generation and EIA only expects that figure to drop to 75 percent by 2030. China’s generating sector is also investing in nuclear power. Generation from nuclear power is expected to increase by 570 percent by 2025, according to the EIA. That increase is equivalent to an additional 40 gigawatts of new nuclear generating capacity—a lower forecast than some, who are reporting 60 gigawatts of nuclear power in China by 2020.[12]

China’s Liquid Fuels Consumption

China’s liquid fuel consumption is currently 7.2 million barrels per day, a rate of about a third of the United States. However, its projected growth far exceeds the U.S.; China is expected to increase its liquid consumption by 6.6 million barrels per day by 2025 (the largest growth of any country). At that time, China will consume about two-thirds of the U.S. level of liquids consumption. Unlike its vast coal reserves, China is not endowed with a lot of oil resources. Its oil reserves totaled 16 billion barrels in January 2009.[13] As a result, China has actively worked with other oil-producing countries (e.g. Venezuela, Angola). China has widely exchanged financial incentives for future access to oil supplies [14] including in U.S. waters in Gulf of Mexico.[15] China became the world’s second largest vehicle market in 2006, when sales exceeded those of Japan. In 2007, China produced nearly 8.9 million motor vehicles, an increase of 22 percent in production over 2006. China is the world’s third largest vehicle producer after the U.S. and Japan. The economic downturn reduced the growth in China’s vehicle sales to less than seven percent in 2008 and a lower rate is expected for 2009. Part of China’s economic stimulus package is expected to be used for infrastructure improvements in the transportation and electric power sectors.

China’s Natural Gas Consumption

While China’s use of natural gas today is only at three percent, it is expected to triple its usage by 2025. Since China is not home to much of the World’s natural gas reserves (only 1.3 percent)[16], it will rely on imports to meet much of its natural gas demand. In 2030, EIA expects imports to make up more than one-third of China’s total natural gas consumption. To meet this growing need, China opened its first liquefied natural gas facility in 2006 and is expected to have a natural gas pipeline built by 2011 from Turkmenistan via Kazakhstan. Recently, Qatar has decided to divert around 10 percent of its liquefied natural gas exports to China from the United States because China is willing to pay more for the product.[17] It is a good thing that hydraulic fracturing has helped immensely to increase domestic U.S. supplies of natural gas, although the technology is currently being threatened by federal politicians, who are looking to restrict its use.[18]

China’s Carbon Dioxide Emissions

As fossil fuels represent 93 percent of China’s current energy demand, it is not surprising that China ranks first in carbon dioxide emissions in the world, with 6,018 million metric tons released in 2006. By 2025, that number is expected to increase to 10, 707 metric tons, an increase of 78 percent from its 2006 value and 75 percent higher than expected carbon dioxide emissions in the U.S. in 2025.

Bottom Line

China wants to become the world’s largest economic power, and China’s leaders understand the fundamental reality that abundant supplies of affordable, reliable energy are essential to economic growth. This is in stark contrast to the U.S. government’s actions to severely limit access to our domestic energy resources and the current proposals to tax carbon dioxide emissions from about 85 percent of our energy (oil, coal, and natural gas) through cap-and-trade. Unlike the United States, China is ambitiously pursuing energy policies to make sure its people have enough energy to grow their economy and make their lives better.

[1] Paul Foy, Interior Secretary Sued for Revoking Utah Leases, ABC News, http://abcnews.go.com/Business/wireStory?id=7592093.

[2] Daniel Whitten, Salazar to rewrite Bush oil-shale plan, Bloomberg News, http://www.chron.com/disp/story.mpl/headline/biz/6280852.html.

[3] Jim Tankersley, Salazar puts expanded offshore drilling on hold, L.A. Times, http://articles.latimes.com/2009/feb/11/nation/na-offshore-drilling11.

[4] Institute for Energy Research, President Obama’s Budget includes $1.6 trillion in new taxes—the largest tax increase in history, http://www.instituteforenergyresearch.org/2009/02/26/president-obama-budget-includes-16-trillion-in-new-taxesthe-largest-tax-increase-in-history/.

[5] Roger Harrabin, China building more power plants, BBC News, http://news.bbc.co.uk/2/hi/6769743.stm.

[6] Institute for Energy Research, Lost in Translation, http://www.instituteforenergyresearch.org/2009/07/28/lost-in-translation/.

[7]http://online.wsj.com/article/SB125409730711245037.html

[8] http://www.eia.doe.gov/iea/

[9] http://www.eia.doe.gov/oiaf/ieo/index.html

[10] EIA is an independent statistical agency within the U.S. Department of Energy that forecasts future energy outlooks for the U.S. and the world.

[11]http://online.wsj.com/article/SB125409730711245037.html

[12] http://www.eenews.net/Greenwire/2008/12/23/

[13] “Worldwide Look at reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48 (December 22, 2008), pp23-24.

[14]Venezuela signed a $16 billion investment deal with China over three years. The deal could raise oil output by several hundred thousand barrels a day. http://www.eenews.net/Greenwire/2009/09/18/

China National Petroleum Corp. received a $30 billion low-interest loan from a state-run bank to finance overseas acquisitions, Beijing’s latest bid to secure mineral resources to fuel the country’s burgeoning economy. http://www.eenews.net/Greenwire/2009/09/09/

CNOOC and Sinopec have agreed to buy a 20 percent stake in an oil field off the coast of Angola for $1.3 billion, the latest in a series of Chinese acquisitions of overseas energy and mining assets. http://www.eenews.net/Greenwire/2009/07/20/

[15] David Pierson, China’s push for oil in the Gulf of Mexico puts U.S. in awkward spot, L.A. Times, http://www.latimes.com/business/la-fi-china-oil22-2009oct22,0,2776603.story?track=rss.

[16] “Worldwide look at Reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48 (December 22, 2008), pp. 22-23.

[17] Reuters, “Qatar diverts LNG to higher-paying China from U.S.”{, October 27, 2009, www.reuters.com/article/companyNews AndPR/idUSLR15622520091027

[18] “States to U.S. Congress: Hands Off Hydraulic Fracturing”, May 19, 2009, www.energyindepth.org/2009/05/1005/

Whatever the reason, we would like to apologize to AWEA. Apparently we compelled them to use ad hominem attacks like “anti-clean energy” to describe our organization and “bogus” to describe our research. We would have preferred that AWEA produce a substantive rebuttal to our recently released report, “Economic impacts from the promotion of renewable energies: The German Experience.”

In an October 21^st blog post, AWEA states “IER’s strategy clearly is to discredit wind energy in other countries.” We do not have a strategy to discredit wind energy in other countries. President Obama and top Administration officials are telling us that America must follow Germany’s example with respect to renewables or we will be left behind. Taking the President at his word, we sought to better understand Germany’s experience by commissioning a study by the think tank Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI). The report found the following facts:

• Financial aid to Germany’s solar industry has now reached a level that far exceeds average wages, with per worker subsidies as high as $240,000.

• In 2008, the price mark-up attributable to the government’s support for “green” electricity was about 2.2 cents US per kWh. For perspective, a 2.2 cent per kWh increase here in the US would amount to an average 19.4 percent increase in consumer’s electricity bills.

• Between 2000 and 2010, the net cost of the German government support for solar was $73.2 billion and an additional $28.1 billion for wind. Because the U.S. economy is five times larger that Germany’s, a comparable expenditure in the U.S. would amount to about half a trillion dollars.

• Green jobs created by government actions disappear as soon as government support is terminated, a lesson the German government and the green companies it supports are beginning to learn.

• Government aid for wind power is now three times the cost of conventional electricity.

AWEA lobbies Congress for government handouts and subsidies for wind energy production, so we understand why they would like to these facts to remain hidden.  As the report shows, Germany’s experiment with promoting renewable energy has been expensive, and transplanting that experience to the United States will be expensive.

Apples to oranges, AWEA argues, because Germany is not a good model for the United States.  In their own words:

“The problem is that the United States is not considering a feed in tariff as a means to encourage wind development because it would not work. Instead, the US is considering a free-market based national Renewable Electricity Standard, and numerous studies have shown that an RES would decrease electricity prices.”

We hope AWEA informs President Obama and other top Administration officials that Germany’s feed-in tariff is not a good model for the United States.

We hope AWEA informs Representative Jay Inslee, who is promoting legislation to establish a federal feed-in tariff, that the United States is not considering a feed-in tariff, as it would probably come as a surprise to him.

In a Congressional hearing on September 24, 2009, Representative Inslee explained that Germany’s system of promoting renewables through a feed-in tariff is a better way to go than the Spanish experience.

We hope AWEA informs itself that Germany’s feed-in tariff “would not work” in the U.S., instead of describing it as “similar to a Renewable Electricity Standard” which AWEA strongly supports.  Here’s what AWEA’s website says:

“A distributed generation or “feed-in” tariff ensures that locally owned, small-scale renewable energy systems become significant contributors to the local power supply. A feed-in tariff is similar to a Renewable Electricity Standard (see “Wind energy policy issues” www.awea.org/faq/wwt_policy.html) except that instead of establishing a set quantity of renewable electricity a utility must generate, it establishes a set price at which a utility purchases excess electricity from a renewable generator, such as a small wind system.”

In AWEA’s blog post, they describe a national Renewable Electricity Standard as “a free-market” program. That is not accurate. In free markets, people are free to choose. A Renewable Electricity Standard forces people to buy wind, solar, and other government-approved energy sources. It is a mandate.  Forcing someone to buy your product is not a free-market program by any definition.

Contrary to AWEA’s assertion that a Renewable Electricity Standard would lower energy prices, common sense and real-world evidence suggest otherwise. Wind and other government-approved renewables are more expensive than other forms of energy. Common sense tells us that requiring people to buy expensive and inefficient renewable energy, through a renewable energy mandate, will only increase the cost of electricity. Currently, twenty-nine states have binding renewable electricity mandates and the electricity prices in those states are thirty-eight percent higher than in states that do not have binding renewable electricity mandates.

Lastly, AWEA states that they expect IER “to take on other countries that have successfully integrated wind into their energy mix.” That assumes, of course, that increased electricity prices and billions of dollars in subsidies is a sign of successful integration of wind into a country’s electricity mix. Some would beg to differ, especially those who are footing the bill.

The Administration tells us that U.S. energy policy should emulate countries like Spain, Denmark, and Germany. The facts show that the promotion of renewables in Spain, Denmark, and Germany has been very expensive and has resulted in lower employment overall as an opportunity cost of the lavish subsidies. Of course, it is up to policymakers to ultimately decide whether the United States should follow a similar path, but no one should mislead Americans into thinking that doing so will come without a cost.

Elmendorf’s testimony was in response to a revision of CBO’s original report on the cost of the Waxman-Markey bill. When the original report came out, IER showed that CBO’s own numbers demonstrated that the economic costs of Waxman-Markey’s cap-and-trade scheme far outweighed its benefits to American citizens, and arguably even to the world as a whole. In the present post, we explain why Elmendorf’s three key points are misleading. Elmendorf calls hundreds of billions of dollars in lost future economic growth a “modest” reduction, he obfuscates by focusing on purchasing power instead of on the reduction in total income, and contrary to economic theory, assumes that low- and middle-income families will benefit from free allowances handed out to utilities. By simply stressing different aspects of the same underlying CBO analysis, one could have painted a much bleaker picture of the costs of cap-and-trade than Elmendorf chose to convey.

Writing off Billions of Dollars in Lost Future Economic Growth as “Modest”

The first trick Elmendorf deploys is to dismiss reductions in GDP as “modest” because they won’t occur until Americans are wealthier than they are today:

Reducing the risk of climate change would come at some cost to the economy. For example, the Congressional Budget Office…concludes that the cap-and-trade provisions of H.R. 2454…would reduce gross domestic product (GDP) below what it would otherwise have been—by roughly ¼ percent to ¾ percent in 2020 and by between 1 percent and 3½ percent in 2050. By way of comparison, CBO projects that real (inflation-adjusted) GDP will be roughly two and a half times as large in 2050 as it is today, so those changes would be comparatively modest.

Although the CBO director brushes it off, a potential cost of 3.5 percent of total economic output is enormous. In 2008, US GDP was $14.4 trillion. The high-end cost estimate of 3.5 percent works out to $504 billion. Yes, it’s certainly true that if you asked people back in 1970 if 3.5 percent of GDP forty years in their future was a big deal, they probably would have said “Not really.” Yet the people in 2008 would certainly have been upset if $504 billion were sucked out of the economy because of a program implemented forty years earlier.

While CBO calls a 1 percent to 3.5 percent reduction in GDP by 2050 a “modest” cost, what about the benefits? The true irony here is that Elmendorf’s testimony provides an estimate of the cost of global warming. CBO argues that “a relatively pessimistic estimate for the loss in projected real gross domestic product [GDP] is about 3 percent…by [the year] 2100”. So if Elmendorf is allowed to blow off 1 percent to 3.5 percent in GDP because people will be so much richer by 2050, why are we rushing through legislation to avert potential climate change that the same CBO predicts might cost 3 percent of GDP at the end of the century? Won’t Americans be really wealthy by 2100?

Focusing on Consumption Purchasing Power Rather Than Total Income

After assuring the senators that reductions in GDP were modest, Elmendorf then changed the measuring rod:

In the models that CBO reviewed, the long-run cost to households would be smaller than the changes in GDP. Projected GDP impacts include declines in investment, which only gradually translate into reduced household consumption.

This statement is technically true but it is very misleading. Suppose a household currently enjoys a take-home income of $100,000, out of which they put $10,000 into funding retirement and the kids’ college tuition, while the other $90,000 they spend on the mortgage, dining out, clothes, gasoline, and other household necessities. The politicians come along and propose a new tax that will grab an extra $5,000 a year, leaving the family with a new after-tax income of $95,000.

Now most people would think, “Wow, I’m $5,000 a year poorer.” But the apologists for the tax hike could argue, “Actually you’re not really $5,000 poorer, in terms of your lifestyle. You won’t cut out your spending on groceries and food by the full $5,000. Because of your lower income, you will reduce your savings to $9,000 a year, and your other spending down to $86,000 a year. So really the hit to your household’s consumption is only $4,000 per year.”

Would anybody buy that argument? Of course not. Income is income. The “long-run cost to households” will certainly be affected by declines in investment spending, which is counted in GDP. By focusing on a decline in “purchasing power” of 1.2 percent for households by 2050—rather than their estimate of 1.1 percent to 3.5 percent of lost GDP—the CBO is effectively sweeping half the impact under the rug.

Reporting Allowance “Rebates,” Not Gross Compliance Cost

The last trick we’ll note is that the CBO analysis simply takes the government at its word that low-and middle-income families will benefit from the free allowances that will be handed to utilities under the provisions of Waxman-Markey, even though this flies in the face of standard economic theory. As a recent IER study showed, Congress plans on using allowance handouts in order to transfer money from consumers (through higher prices) into the pockets of special interests.

The reader may be interested to see the CBO’s estimates of the actual hike in household costs from Waxman-Markey’s cap-and-trade scheme, before adding in the free allowance handouts:

As the first column makes clear, middle class families are expected to suffer a hit of more than $1,000 per year in higher prices. (And remember, this figure is the one that has already been cut in half using the total output vs. consumption trick explained above.) Whatever happened to “a postage stamp a day”? Does the CBO know something about the Postal Service’s intentions that we don’t?

Conclusion

During a recent hearing, Elmendorf made clear there were substantial costs to cap-and-trade. According to the Washington Post he said:

“The shifts will be significant,” the CBO director said. “We want to leave no misunderstanding that aggregate performance—the fact that jobs turn up somewhere else for some people—does not mean that there are not substantial costs borne by people, communities, firms in affected industries and affected areas. You saw that in manufacturing, and we would see that in response to changes that this legislation would produce.”

Even Elmendorf agrees there are substantial costs to cap-and-trade. And as we have shown, he and the CBO are still underestimating the costs.

He also won’t mention that while the plant employed 400 draftsmen, carpenters, and others during its construction, few full-time employees will be needed during its operation—one engineer to trouble shoot problems and six ground keepers to keep the grass trimmed and animals away.[iii] As such, the ongoing operation of this solar plant will not help the rising Florida unemployment rate.

FPL spent $152 million building the plant[iv], which amounts to $6,080 per kilowatt—a figure substantiated by the Energy Information Administration, who ranks photovoltaic solar the highest cost technology of a potential slate of 20 possible future generating technologies.[v]

While traditional fossil fuel technologies cost substantially less, solar photovoltaic technology is being supported by Federal subsidies, consisting of investment tax credits and accelerated depreciation, and by mandates for renewable power in many US states.[vi] The Florida Legislature approved a one-time rate increase of about 31 cents per month for the average customer to cover the construction of three solar test sites totaling 110 megawatts—about one half of one percent of the total energy FPL produces.[vii]

European Experience

The US is not the only country building and subsidizing solar plants. In fact, it ranks fourth in the world for cumulative installed solar electric power. Germany ranks first, Spain second, and Japan third.[viii] In Germany, solar producers receive as much as 64 US cents per kilowatt hour through a feed-in tariff, which requires utility companies to purchase renewable power at their higher cost. The feed in tariff for photovoltaic solar in Germany is more than eight times higher than the electricity price at the power exchange.[ix] Germany is reducing its subsidies for solar to ease costs for electricity consumers. Surprisingly, Germany’s photovoltaic manufacturing industry is beginning to support slashing subsidies due to competition from Chinese manufacturers, whose production costs are 30 percent lower. China is now the world’s largest producer of solar cells.[x]

Spain has a mandate requiring 20 percent of its electricity generation to come from renewable power by 2010, and it uses feed-in tariffs to further promote renewable generation. In 2008, Spain’s solar power cost was over 7 times higher than its average electricity price.[xi] Spain also slashed subsidies for solar power, limiting those subsidies to 500 megawatts, about one-fifth of the solar capacity it subsidized in 2008.[xii] In Japan, the government has set a target for 30 percent of all households to have solar panels installed by 2030.[xiii]

Subsidy Levels by Country

In 2008, the International Energy Agency released an analysis of policies used to deploy renewables during the period 2000-2005 for the 30 countries of the Organization for Economic Cooperation and Development and for Brazil, Russia, China, India, and South Africa.[xiv] They found that the investment costs of photovoltaic systems are high, representing the most important barrier to their deployment. The agency’s calculated 2000-2005 policy effectiveness levels for photovoltaics are lower by a factor of ten than for more mature renewable technologies such as wind energy. Feed-in tariffs (complemented by the easy availability of soft loans and fair grid access) have been very effective in Germany, albeit at a high cost. In recent years, the level of the German feed in tariff for solar photovoltaics has decreased to some extent, and an element of degression, a pre-determined percentage decrease in the renewable technologies’ support level, has been introduced. The German parliament approved proposals for acceleration of degression rates for stand-alone installations from 5 percent per year in 2008 to 10 percent per year in 2010 and 9 percent from 2011 onwards. According to the IEA, this creates incentives to reduce costs.

The IEA calculated the remuneration levels in 2005 for each renewable technology for the 35 countries they analyzed. The solar remuneration levels are given in the figure below. In Luxembourg, for example, the remuneration level in 2005 was as high as 90 cents US per kilowatt hour. The average renumeration levels are higher for solar photovoltaic technologies than for other more mature renewable technologies due to their high investment costs.

Conclusion

Even with large subsidies, solar photovoltaic power is having trouble gaining market share, contributing less than one percent to the total power generated in each of the countries that have the largest solar capacity in the world—Germany, Spain, and the United States. The reason is the high investment costs that solar power needs for deployment. Regardless, our Federal and state governments seem intent on making consumers of electricity pay for solar technologies that are not economic against traditional generating technologies causing taxpayers and customers to subsidize their construction and operation. Our state and Federal politicians tout that this will help employment. However, when the largest solar plant built in the United States goes operational on Tuesday, it will lose 393 employees that it employed for less than a year, needing only 7 for ongoing operations.

[i] http://my.att.net/s/editorial.dll?eeid=6895421&eetype=article&render=y&ck=&ch=mo

[ii] http://www.fpl.com/environment/solar/desoto.shtml

[iii] “Solar plant set to open, even as shadows loom”, Herald Tribune, Zac Anderson, Oct. 14, 2009, http://www.heraldtribune.com/article/20091014/ARTICLE/910141033/2055/NEWS?Title=Solar-plant-set-to-open-even-as-shadows-loom

[iv] Ibid.

[v] Energy Information Administration, Assumptions to the Annual Energy outlook 2009, Table 8.2, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html

[vi] http://www.instituteforenergyresearch.org/2009/10/19/the-u-s-doubles-down-on-solar-subsidies-while-europe-retreats/

[vii]“Solar plant set to open, even as shadows loom”, Herald Tribune, Zac Anderson, Oct. 14, 2009, http://www.heraldtribune.com/article/20091014/ARTICLE/910141033/2055/NEWS?Title=Solar-plant-set-to-open-even-as-shadows-loom

[viii] Solar Energy Industries Association, http://www.seia.org/cs/about_solar_energy/industry_data

[ix]“Economic Impacts from the promotion of renewable energies”, Rheinisch-Westfalisches Institut fur Wirtschaftsforschung , http://www.instituteforenergyresearch.org/germany/Germany_Study_-_FINAL.pdf

[x] “Solar-Power Incentives in Germany Draw Fire,” Vanessa Fuhrmans, Wall Street Journal, September 28, 2009, http://online.wsj.com/article/SB125383541153239329.html

[xi] Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf

[xii] Wall Street Journal, “Darker Times for Solar-Power Industry”, May 11, 2009, http://online.wsj.com/article/SB124199500034504717.html .

[xiii] Energy Information Administration, International Energy Outlook 2009, May 2009, page 68, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf .

[xiv] International Energy Agency, “Deploying Renewables: Principles for Effective Policies”

Unlike previous versions, this one spells out which groups are politically-favored enough to receive preferential treatment in the form of free carbon dioxide emissions allowances. This draft also includes “Increased Investments in Energy Efficiency and Renewable Energy.” In other words, increased subsidies for politically-favored forms of energy. The premise of this section of the bill seems to be that the American people need the federal government to tell them how to use energy cost-effectively.

Like Waxman-Markey, this bill is shaping up to be incredibly costly and incredibly intrusive into all aspects our energy use.

The concept of an RPS is not new. Twenty-nine states and the District of Columbia currently have some form of RPS[iii], but few states are meeting their mandates,[iv] and these states have often tailored their “qualified renewables” liberally to what makes sense to their area. Texas, a state that has met its mandates mainly from wind-generated power, the least-cost qualified renewable, is now considering expanding into more costly renewables, such as solar power. Houston, for example, is considering using solar to generate 1.5 percent of its government’s needs from a 10-megawatt plant to be built by NRG and to be operating by July 2010. When the sun is not visible, the plant will be backed-up by the city’s natural gas-fired generating units.

The proposed 10-megawatt Houston plant is estimated to cost $40 million[v], $4,000 per kilowatt, which is a smaller cost figure than many other solar project estimates and most probably speculative. And, that $4,000 per kilowatt is also far more costly than other generating technologies that are more reliable to boot. For example, the Energy information Administration (EIA), an independent agency within the U.S. Department of Energy, is estimating the cost to build a coal-fired plant at about half the estimated cost in Houston, or just over $2,000 per kilowatt, and a natural-gas fired plant at less than a quarter of that cost, at below $1,000 per kilowatt. [vi] EIA’s estimate for a photovoltaic plant, which is what is being proposed in Houston, is just over $6,000 per kilowatt, 50 percent higher than the NRG cost estimate.[vii] In fact, photovoltaic solar is the highest-cost generating technology of EIA’s slate of 20 potential technologies for generating this country’s future electricity needs.[viii]

European Experience

However, we do not have to use EIA’s cost figures to know that solar is non-competitive with conventional grid generation. Several countries in Europe have already implemented RPS type programs with hefty subsidies funded by the country’s taxpayers. They include Spain, Germany, and Denmark. For example, in Alvarado, Spain, the energy firm Acciona inaugurated a 50-MW concentrating solar power plant in late July. The cost is €236 million, about $350 million U.S., or about $7,000 per kilowatt.[ix] Construction of the plant began in February 2008, with an average of 350 people working throughout the 18-month construction period. The plant will be run by a 31-person operation and maintenance team. This is the second solar plant of this type built in Spain. Its predecessor has been operating since June 2007.[x]

Spain ranks second in the world in installed solar capacity, second only to Germany.[xi] To achieve that ranking, Spain initiated legislation that requires 20 percent of its electricity generation to be from renewable energy by 2010. To make renewable energy attractive to investors, Spain also subsidized its renewable technologies. In 2008, for instance, when solar power generated less than 1 percent of Spain’s electricity, its cost was over 7 times higher than the average electricity price. Due to feed-in tariffs, utility companies were forced to buy the renewable power at its higher cost. And not only is solar power more expensive, jobs that could have been fostered and continued elsewhere in the Spanish economy were foregone to meet the government’s renewable mandates. A Spanish researcher found that while solar energy employs many workers in the plant’s construction, it consumes a great amount of capital that would have created many more jobs in other parts of the economy. In fact, for each megawatt of solar energy installed in Spain, 12.7 jobs were lost elsewhere in the Spanish economy.[xii] Recently, the Spanish government decided to slash subsidies to solar power. Spain will subsidize just 500 megawatts of solar projects this year, down sharply from 2,400 megawatts last year.[xiii]

Germany—the world’s highest ranking country for installed solar capacity and the largest market for solar products—is also slashing its subsidies for solar power in order to ease costs for electricity users. Owners of solar panels receive as much as 43 euro cents (64 U.S. cents) per kilowatt hour of power they generate.[xiv] The Energy Information Administration calculates the levelized cost of electricity[xv] from solar photovoltaic power to be 39.57 cents per kilowatt hour (2007 dollars) in 2016,[xvi] far less than the German subsidy. According to some German researchers, the feed-in tariff for solar is 43 euro cents per kilowatt hour (kWh), making solar electricity by far the most subsidized technology among all forms of renewable energy. This feed-in tariff for solar photovoltaic power is more than eight times higher than the electricity price at the power exchange and more than four times the feed-in tariff paid for electricity produced by on-shore wind turbines. Because of solar power’s low capacity factor, solar generated only 0.6 percent of Germany’s electricity in 2008.[xvii] Since the sun doesn’t always shine on solar plants, solar power cannot compete with more mature generating technologies. The EIA estimates the capacity factor for solar in 2008 to be 17 percent.[xviii]

U.S. Subsidies

While the U.S. does not have feed-in tariffs at this time, it does subsidize solar power through investment tax credits that are as high as 30 percent currently and until 2016. Solar also benefits from a permanent investment tax credit of 10 percent in the U.S., and a 5-year accelerated depreciation write-off. The Energy information Administration estimates that total federal subsidies for electric production from solar power for fiscal year 2007 were $24.34 per megawatt hour, compared to 25 cents per megawatt hour for natural gas and petroleum fueled technologies—98 times higher.[xix] Yet, even with these subsidies, solar generated only 0.02 percent of U.S. electricity in 2008.[xx] That is because solar at around 40 cents per kilowatt hour is more than 4 times as expensive on a levelized cost basis than its fossil competitors. (EIA estimates that levelized costs for conventional coal are 9.46 cents per kilowatt hour and those for natural gas combined cycle are 8.39 cents per kilowatt hour (in 2007 dollars) for 2016.[xxi])

Of course, the U.S. is slow in learning from Europe’s experiences. On October 12, 2009, California Governor Arnold Schwarzenegger signed into law S.B. 32, a feed-in tariff that requires California utilities to buy all renewable generation under 3 megawatts within their service territories, until they hit a state-wide total cap of 750 megawatts.[xxii] How California will monitor this program is yet to be seen. It has yet to achieve its renewable generating mandates from its RPS program.[xxiii]

Conclusion

Solar power has it place in certain applications. As always, the individual citizen or company should be able to choose if solar works for their energy needs. But using solar power to generate electricity for the electrical grid is very expensive. Requiring ratepayers to buy solar power, either through renewable energy mandates or through feed-in tariffs, will only increase the price of electricity. The last thing the economy needs is higher energy prices, but that is exactly what solar energy’s supporters are promoting.

[i] Robert J. Michaels, The Other Half of Waxman-Markey: An Examination of the non-Cap-and-Trade Provisions, http://www.instituteforenergyresearch.org/pdf/Other_Half_of_Waxman-Markey–FINAL.pdf

[ii] H.R. 2454, section 101

[iii] Database of State Incentives for Renewables and Efficiency (DSIRE), North Carolina State University, http://www.dsireusa.org/incentives/index.cfm?SearchType=RPS&&EE=0&RS=1

[iv] Traci Watson, States not meeting renewable energy goals, USA Today, Oct. 8, 2009, http://www.usatoday.com/money/industries/energy/2009-10-08-altenergy_N.htm.

[v] “Solar forecast: expensive”, Loren Steffy, Houston Chronicle, September 29, 2009, http://www.chron.com/disp/story.mpl/business/steffy/6643904.html

[vi] Energy information Administration, Assumptions to the Annual Energy outlook 2009, Table 8.2.

[vii] Ibid.

[viii] Ibid.

[ix] Sonal Patel, Power Digest, Power Magazine, Sept. 2009, http://powermag.com/business/2144.html.

[x] Sonal Patel, Interest in Solar Tower Technology Rising, Power Magazine, http://powermag.com/renewables/solar/Interest-in-Solar-Tower-Technology-Rising_1876.html.

[xi] Solar Energy Industries Association, http://www.seia.org/cs/about_solar_energy/industry_data

[xii] Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf

[xiii] Wall Street journal, “Darker Times for Solar-Power Industry”, May 11, 2009, http://online.wsj.com/article/SB124199500034504717.html .

[xiv] “Merkel’s Coalition to “Definitely” Cut German Solar subsidies”, Brian Parker and Nicholas Comfort, Bloomberg, October 12, 2009, http://www.bloomberg.com/apps/news?pid=206011

[xv] The levelized cost of a generating technology is the present value of the total cost of building and operating the generating plant over its financial life.

[xvi]“Levelized Cost of New Electricity Generating Technologies” , Institute for Energy Research, May 12, 2009, http://www.instituteforenergyresearch.org/2009/05/12/levelized-cost-of-new-generating-technologies/

[xvii] “Economic impacts from the promotion of renewable energies”, Rheinisch-Westfälisches Institut für Wirtschaft sforschung

[xviii] “Solar forecast: expensive”, Loren Steffy, Houston Chronicle, September 29, 2009, http://www.chron.com/disp/story.mpl/business/steffy/6643904.html

[xix] Energy information Administration, Federal Financial interventions and Subsidies in Energy markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html .

[xx] Energy Information Administration, Monthly Energy Review, Table 7.2a, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf

[xxi]“Levelized Cost of New Electricity Generating Technologies” , Institute for Energy Research, May 12, 2009, http://www.instituteforenergyresearch.org/2009/05/12/levelized-cost-of-new-generating-technologies/

[xxii] Greenwire, “California: Schwarzenegger signs feed-in tariff, spate of enviro bills”, October 12, 2009, http://www.eenews.net/Greenwire/2009/10/12/4/

[xxiii] Robert J. Michaels, “A National Renewable Portfolio Standard: Politically Correct, Economically Suspect,” Electricity Journal 21 (April 2008)