Much praise has been given for Ontario’s Feed-in-Tariff program and its potential to develop renewable power generation to levels comparable in countries like Germany and Denmark, where FITs have also been used. But some have commented that a carbon pricing system (either through a carbon tax or cap-and-trade system) would be far more effective. They are only half right.
They are right because a FIT is very expensive. Indeed, Ontario’s Green Energy Act has allocated $5B over the next five years, much of which will be put towards its FIT program. A carbon pricing system, on the other hand, is relatively cheap to maintain and (if done properly) a revenue generator. These people are also right because it effects traditional energy production, specifically fossil fuel generation like gas, oil and coal. The price of generation of these technologies increases and makes renewables more economically attractive. Moreover, for those with a particular appetite for freedom of choice, it doesn’t let governments pick and choose the technologies it wants. Indeed, the market decides.
In his book, Heat, George Monbiot struggles to find out how renewables alone could supply our current demand for energy. In short, they can’t. A carbon-pricing scheme would make energy conservation more attractive because we’d have to pay extra for wasting energy. Furthermore, even if we can’t get to the energy demand levels required for purely renewable power generation, a carbon-pricing system could make carbon capture and storage technologies economically viable without massive public subsidies.
But they are wrong because a carbon-pricing scheme alone won’t solve the problem of developing renewables. First, if the market has its way, only the cheapest renewables would get built, most likely hydro and on-shore wind power. But several other technologies would get left out in the dust. Solar PV, wave, tidal, offshore wind and even some biofuels wouldn’t be able to compete. This is not to say these technologies are not beneficial, but rather that they are immature. Considering that many in the renewable energy field believe we need a diverse mix of all technologies to properly reap the rewards of renewable energy, a carbon-pricing scheme might leave us with only a few options.
This would be fine if there were moving water and windy areas everywhere. But some places are very sunny and dry, some have massive tidal flows and other places really, really hate wind turbines. Specific technologies need to be brought up to par and sometimes a direct and exclusive financial incentive (ex. A technology-specific FIT) is necessary. And if you’re smart about it, like Ontario is trying to be, you can invest in the technology now and export it to the rest of the world for a nice chunk of change. Look at Vestas in Denmark, for example.
Now, it wouldn’t really matter what technology you picked if the carbon price was high enough. As long as a technology can make some money, it will be put into use. The problem is that we would need some very high carbon prices.
According to a New Energy Finance study mentioned in The Economist, onshore wind requires a carbon price of US$38/tonne to become economically viable without subsidy. This is not an outlandish price. Carbon taxes in some European countries are over US$100/tonne, so it isn’t politically impossible. But before you get too excited, let’s remember that Stephane Dion’s Green Shift platform ran alongside a $10/tonne tax on carbon and it was demolished. Even the relative success story of British Columbia’s carbon tax is fraught with political opposition, and it’s only hovering around the $15/tonne mark these days. The only large-scale attempt at setting a carbon price is the European Union’s Emissions-Trading-Scheme, which has the price set at US$22/tonne. These prices might eventually get around the $40/tonne mark, but that won’t do it for the more expensive technologies. Offshore wind requires a price of US$136/tonne and solar PV US$196/tonne. You want to set a carbon price to make that economically viable? Good luck.
But this entire post has offered us a false choice. What we really need is both a carbon price and subsidy programs. A price on carbon is absolutely necessary, even if it is as small as $10/tonne. It will at least give some indication to industry and consumers so they can include the carbon costs in their accounts. And any revenues taken from it can go towards subsidies. What’s really needed is the political will and more importantly, public recognition and understanding of why a price on carbon is needed and the necessity of renewable energy technologies.
Finally, I’ll end with a piece of advice frequently used by George Monbiot. No matter what we do to help out renewables or fight climate change, it’s all worthless if we keep feeding the fossil fuel industry with tax breaks and subsidies. Monbiot equates it to filling yourself up on fatty, unhealthy foods, but adding a salad and not expecting to gain any weight. But right now, we’re getting pretty fat.
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